The Australian Energy Regulator (AER) today published its determination in response to a dispute notice lodged by the Office of the Commissioner for Kangaroo Island and the Kangaroo Island Council (the disputing parties). This notice disputed conclusions made in SA Power Networks’ final project assessment report (FPAR) for the Kangaroo Island Submarine Cable regulatory investment test for distribution (RIT-D), contending that SA Power Networks had not properly quantified the market benefits associated with the 66kV cable option.
The AER finds that SA Power Networks did not apply the RIT-D in accordance with the National Electricity Rules (Electricity Rules), but that it is not required to amend its FPAR. More specifically, the AER found that SA Power Networks did not adequately consider the ‘option value’ associated with the 66kV option because it did not incorporate a suitable range of future scenarios, in particular, a ‘high demand’ scenario.
However, additional analysis showed that the inclusion of a 'high demand' scenario would not change the outcome of this RIT-D assessment. Therefore, the AER has concluded that SA Power Networks is not required to amend its FPAR.
Background information on the AER’s decision
- Kangaroo Island is supplied by an undersea cable connecting the island to SA Power Networks’ mainland distribution network. The undersea cable is approaching the end of its asset life and SA Power Networks considered it prudent to determine if the cost to replace the cable was lower than the costs associated with running it to failure.
- On 12 April 2016, SA Power Networks commenced a RIT-D consultation process to identify the preferred option to maintain security of supply to Kangaroo Island. This consultation concluded on 23 December 2016, with SA Power Networks publishing its FPAR. The RIT-D assessment considered eight credible options and found that the installation of a second 33kV undersea cable by 2018 had the highest net economic benefit, making it the preferred option.
- On 23 January 2017, the disputing parties submitted a written dispute notice to the AER contending that SA Power Networks had not applied the RIT-D in accordance with the Electricity Rules.
- Today’s AER determination concludes SA Power Networks’ application of the RIT-D for the Kangaroo Island Submarine Cable. However, in accordance with the Electricity Rules, if there is a material change in circumstances whereby the 33kV option is no longer the preferred option, SA Power Networks may be required to reapply the RIT-D.