| Excerpt / Summary On 20 October 2011, the AEMC gave notices under the relevant provisions of the National Electricity Law (NEL) and National Gas Law (NGL) to initiate and commence assessment of the rule change proposals received from the Australian Energy Regulator (AER) in relation to the economic regulation of electricity network businesses under the National Electricity Rules and determining the rate of return for gas network businesses under the National Gas Rules.
On 18 October 2011, the AEMC received a rule change request from an Energy Users' Rule Change Committee representing Amcor, Australian Paper, Rio Tinto, Simplot, Wesfarmers, Westfield and Woolworths (the Energy Users Committee). The rule change relates to the calculation of return on debt for electricity network businesses under Chapters 6 and 6A of the National Electricity Rules (NER). This is also one of the issues dealt with in the AER proposal relating to the economic regulation of electricity network businesses.
Given that the proposals raised issues in the rules on similar subject matter, on 3 November 2011, the AEMC gave notice under section 93(1)(a) of the NEL to consolidate the proposal by the Energy Users Committee with the AER's Economic Regulation of Network Service Providers proposal. To assist stakeholders in making submissions, the AEMC has released the rule change requests, and the proposed rules for public consultation along with two brief AEMC staff Consultation Papers. Submissions on the rule change requests, including their proposed rules, close on 8 December 2011.
The AEMC held a public forum in Brisbane on 23 November 2011 to facilitate discussion on the proposals.
Background
The Australian Energy Regulator (AER) is responsible for the economic regulation of electricity transmission and distribution businesses in the National Electricity Market (NEM) under the National Electricity Law (NEL) and National Electricity Rules (NER). The AER also oversees the economic regulation of gas transmission and distribution pipeline services in all states and territories except Western Australia and Northern Territory under the National Gas Law (NGL) and National Gas Rules (NGR).
On 29 September 2011, the AER submitted two rule change requests to the AEMC. One rule change request relates to various aspects of the economic regulation of electricity transmission and distribution businesses under the NER, and the other relates to the framework for the determination of the rate of return for gas transmission and distribution businesses under the NGR.
Proposed rules under the NER
The AER is seeking a number of changes to the framework for the economic regulation of electricity network businesses under the NER. The AER's proposed rule changes involve three aspects of the framework, which can be summarised as follows:
changes to the capital and operating expenditure frameworks;
changes to the expenditure incentive arrangements; and
changes to the cost of capital (weighted average cost of capital) framework for determining the rate of return for network businesses.
The AER's rule change request also includes other proposals that seek to change some aspects of its regulatory determination and stakeholder engagement processes.
The Energy Users' Committee's rule change seeks to address what it considers to be one of the main failures of the NER that is contributing to rising network charges resulting from higher capital expenditure and higher regulated rates of returns - i.e. the methodology for the calculation of the return on debt component of the rate of return allowance.
Proposed rules under the NGR
The changes proposed by the AER for determining the rate of return for gas network businesses under the NGR principally relate to aligning the WACC provisions in a consistent manner across all electricity networks and gas pipelines. As part of this proposal, the AER is proposing:
amending the cost of capital provisions in the NGR to mirror the provisions as proposed by the AER in its NER rule change proposal regarding the economic regulation of network businesses;
amending the NGR to require the rate of return to be calculated as a nominal post tax vanilla WACC, in line with the current approach prescribed under the NER; and
amending the NGR to require that the cost of equity be calculated using the Capital Asset Pricing Model (CAPM), in line with the current approach prescribed in the NER.
In its rule change request, the AER has noted that its NGR proposal should be considered together with its NER economic regulation of network businesses Rule change proposal.
Consultation on the rule change requests
On 20 October 2011, the AEMC gave notices under section 95 of the NEL and section 303 of the NGL to initiate and assess the AER's rule change requests.
Given that the proposals raised issues in the rules on similar subject matter, on 3 November 2011, the AEMC gave notice under section 93(1)(a) of the NEL to consolidate the proposal by the Energy Users Committee with the AER's Economic Regulation of Network Service Providers proposal. The result of this consolidation was the creation of a new consolidated rule change request which would run to the same process and timetable as the original AER rule change proposal.
As part of its first round of consultation, the AEMC has released the rule change requests and the proposed rules for public consultation along with two brief AEMC staff Consultation Papers to assist stakeholders in making their submissions. Submissions on the rule change requests, including their proposed rules, close on 8 December 2011.
The AEMC will held a public forum in Brisbane on 23 November 2011 to facilitate discussion on the proposals.
Due to the complex nature of these rule change requests, the AEMC has also determined under section 107 of the NEL and section 317 of the NGL to extend the length of the rule change process in this case. Accordingly, on 20 October 2011 and 3 November 2011, the AEMC issued notices to extend the period of time for the making of the draft rule determinations on these rule change requests to 26 July 2012. The process will include an extra stage of consultation compared to the standard rule change process. In addition, given the interdependency of issues and the proposed rules noted by the AER in its rule change request for rate of return provisions of the NGR and the NER, the AEMC will consult on these requests under the same process and timetable. Further information on the rule change process, including indicative timetable, is set out in the Consultation Papers.
All enquiries in relation to these rule change requests (AEMC Project Codes ERC0134 and GRC0011) should be addressed to Richard Khoe on (02) 8296 7800 or richard.khoe@aemc.gov.au. |