Networks seek rule change to cut investment “red tape,” critics spy a new door to gold-plating

Electricity networks want to do away with the mandatory, public cost-benefit analysis for some investments, and raise the dollar-threshold under which they don’t need to do these at all. 

Energy Networks Australia (ENA) is asking for a review and a raise of an $8 million threshold that pushes more expensive ‘replacement’ projects into the public cost-benefit process. 

And it wants projects that replace one piece of kit with the same thing to be allowed to avoid the process entirely, and simply notify the regulator that there aren’t any feasible alternatives. 

But in an era where replacements are one of the biggest costs for transmission companies, the request is already making some stakeholders in the energy sector uncomfortable. 

“Some stakeholders questioned whether the proposed Rule change would deliver material benefits to consumers while preserving the prudency and efficiency of [transmission network service provider] TNSPs’ investment decisions,” ENA said in its request.

And it’s also coming as the Australian Energy Market Commission (AEMC) considers whether to hike the fixed charges that consumers now pay by between 350 per cent and 500 per cent. 

Consumers are already being asked to shoulder more of the huge costs of building new transmission lines: Transgrid wants to pass on $1.1 billion, Basslink’s owner APA is now allowed to farm its costs out to consumers, and the Australian Energy Regulator (AER) has approved Marinus’ move to pass on a whopping $3.4 billion of costs to households. 

Nexa Advisory CEO Stephanie Bashir says taking projects out of the public cost-benefit tests is the opposite of what is needed at a time when consumers are paying more than ever for electricity.

“Energy consumers are already footing the bill for delays in the clean energy transition – and for the transition itself. Weakening scrutiny only adds to that burden,” she told Renew Economy.

“What we need right now is more transparency and stronger accountability from network businesses – especially the DNSPs – not less.

“The RiT has struggled to be fit for purpose. But removing guardrails without replacing them with a clear transparency, cost–benefit and delivery accountability framework risks opening the door to gold-plating without proper scrutiny.

“If we’re asking households and businesses to fund major grid upgrades, they deserve full visibility on costs, benefits and delivery performance.”

Electricity networks, as regulated monopolies, are allowed to pass on the costs of running their infrastructure to consumers. It’s a process watched over by the AER to ensure the maintenance and new builds offer consumers the best possible deal.

Back to the old ways

ENA chief Dominique van den Berg believes there are good reasons to revert at least partly to the way things were in 2017, when replacement projects were added to the public interest Regulatory Investment Test for Transmission (RIT-T). 

“With the benefit of hindsight, it is now apparent that the 2017 Rule change increased compliance costs, and delayed essential investment, without delivering any material consumer benefits,” van den Berg wrote in ENA’s request to the AEMC.

“By reducing ‘red tape’, TNSPs and stakeholders can focus their attention on engagement activities that deliver genuine value. Streamlining the RIT-T will also reduce investment delays, particularly for those projects that have a shorter lead time.”

The Australian Energy Regulator (AER) changed the rules in 2017, following several years when TNSPs were spending vastly more on replacing old components than building new – around $600 million a year compared to around $100 million for augmentation, according to the chat below.

Furthermore, new technologies such as big batteries and demand management was expected to provide “credible alternative options for replacement projects” the AER’s original rule change request in 2016 said.

And it wanted all of these options tested to ensure they delivered good value for consumers. 

Image: AER State of the Energy Market 2025

Today, spending on new transmission projects has ratcheted up as cost surge at major projects such as Humelink and VNI West, and interstate interconnectors EnergyConnect and Marinus.

And yet the cost of delivering replacement projects, according to the regulator’s State of The Energy Market 2025 report last year, has been relatively stable since 2009. 

“In the AER’s most recent revenue determinations, [Energex, Ergon Energy and SA Power Networks and the Directlink interconnector] the most significant driver of forecast investment expenditure was the replacement of assets that are reaching the end of their life, along with infrastructure that supports the delivery of electricity transmission services,” it said. 

Reducing red-tape

ENA says the regulator originally didn’t want replacement-only projects subject to the RIT-T, but the AEMC decided it would be easier to put them all through the same process. 

Eight years on, and the networks want a rethink.

One of its reasons is that very few entities are engaging with the public consultation process.

It says there were only 10 submissions made on 124 like-for-like replacement projects put through the first stage of the RIT-T process in the last five years.

Of these submissions, none resulted in, or asked for, a major change in what ended up being delivered.

Van den Berg says given few stakeholders are responding when a replacement project goes to the RIT-T, the effort it takes to prepare documentation is diverting resources and money that could be better spent. 

“A reduced regulatory burden will ultimately lead to lower costs for consumers and improved service outcomes, and avoid delays in project delivery,” he wrote.

He says the current threshold of $8 million is “out-of-step with the costs of delivering transmission projects and the costs of preparing RIT-Ts.”

And in response to concerns about shutting public feedback out of the loop entirely, the ENA modified its rule change proposal so stakeholders can still share their views but in response to a notice of determination rather than a RIT-T process.

The ENA request says the expected benefits from adding replacement projects to the RIT-T haven’t eventuated, but it has increased compliance costs, and delayed essential investment.

But with replacement costs still making up a huge chunk of transmission budgets, the regulator may not be inclined to loosen the public interest requirements on these just yet.

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