AER consults on class waiver to distribution Ring-fencing Guideline

The Australian Energy Regulator (AER) is seeking feedback on granting a class waiver under its electricity distribution ring-fencing guideline (the Guideline) that will enable distribution network service providers (DNSPs) to potentially build and operate transmission infrastructure in the Central-Orana West Renewable Energy Zone (REZ).

The consideration of a class waiver follows the Infrastructure Planner, Energy Corporation of NSW’s commencement of a competitive procurement process to select a proponent to build the first REZ network project that will provide renewable energy to NSW homes and businesses. Based on our understanding of the regulatory framework that is being developed by the NSW Department of Planning and Environment, it appears that the services provided by the Central-West Orana REZ project will may not match with those that are able to be provided by DNSPs under our distribution ring‑fencing guideline. Therefore, based on the information available to us, DNSPs bidding for the project may be in breach of clause 3.1 of the Guideline.

In considering whether to grant such a waiver, the AER must have regard to the National Electricity Objective, the potential for cross-subsidisation and discrimination if a waiver is granted or not granted, and whether the benefit, or likely benefit, to electricity consumers of the DNSP complying with clause 3.1 of the Guideline would be outweighed by the cost to the DNSP of complying with that obligation.[1]

Consultation

We are seeking verbal feedback or written submissions to assist us in our decision-making. We will consider all submissions and provide a statement of reasons with our decision.

Our verbal feedback session will be held on Wednesday 9 March 2022 for one hour from 12 to 1 pm (AEDT). We will include a summary of the discussion in our statement of reasons to support our decision. To register for the feedback session, please send a request to AERringfencingaer [dot] gov [dot] au (AERringfencing[at]aer[dot]gov[dot]au) by close of business, Tuesday 8 March 2022.

If providing a written submission, we prefer they be publicly available to facilitate an informed and transparent consultative process. We will treat written submissions as public documents unless otherwise requested.

Timeline

The proposed timing for our consultation and decision is:

1 March 2022                Initiation notice
9 March 2022                ‘Drop-in’ verbal feedback session
14 March 2022              Submissions close
28 March 2022              AER issues decision

Background

The AER exists to ensure energy consumers are better off, now and in the future. We are the economic regulator for electricity and gas networks in every state and territory in Australia except Western Australia. We regulate electricity networks under the National Electricity Law (NEL) and National Electricity Rules (NER). We also regulate natural gas pipelines under the National Gas Law and the National Gas Rules.

On 12 November 2021 we were appointed as a Regulator under the NSW Electricity Infrastructure Investment Act 2020 (EII Act). A key function in this role is to undertake a Transmission Efficiency Test and make revenue determinations for network infrastructure projects authorised by the Consumer Trustee or authorised or directed by the Minister (under Part 5 of the EII Act). Other functions undertaken by us under the EII Act include:

• making annual contribution determinations in relation to the Electricity Infrastructure Fund (Part 7 of the Act);
• approving a risk management framework developed by the Consumer Trustee (Part 6 of the Act); and
• being consulted on tender rules in relation to long-term energy service agreements (Part 6 of the Act).

The EII Act, and regulations that are currently being developed, will allow for network infrastructure projects to be undertaken by a Network Operator in one of two ways:

1. Under a contestable process, a Network Operator is selected through a competitive process to construct and operate the network infrastructure project.
2. Under a non-contestable process, a Network Operator is directly selected by the Infrastructure Planner to construct and operate the network infrastructure project.

In its role as the Infrastructure Planner, the NSW Energy Corporation has decided to undertake a competitive procurement process for the construction and operation of the Central-West Orana REZ network project. NSW Energy Corporation commenced its competitive procurement process for Central-West Orana in January this year.

The AER will have a role in the competitive procurement process and is currently developing a draft guideline on how it will carry out its role. As regulations are still to be finalised, our draft guideline is being developed on the basis of policy positions that have been developed by the NSW Department of Planning and Environment. We expect to release our draft guideline by the end of March and a final guideline in the second quarter of 2022.