Cost thresholds review for the regulatory investment tests 2018

Sector: 
Status: 
Category: 
Regulatory investment test and guidelines
Date initiated: 
31 July 2018
Effective date: 
1 January 2019
Contact: 
General enquiries - RIT RIT@aer.gov.au
AER reference: 
63054

Overview

We are reviewing the cost thresholds for the regulatory investment test for transmission (RIT T) and distribution (RIT D) (collectively, the 'RITs').

When exploring whether to undertake a large network investment, network businesses must apply a cost benefit analysis under a RIT to identify the most efficient investment option. When applying a RIT, network businesses can skip some parts of the consultation process if the large investments they are exploring are still less than a certain size. The RIT cost thresholds determine what constitutes a sufficiently 'large' network investment for these purposes.

Under clause 5.15.3 of the Rules, we review the RIT cost thresholds every three years to reflect changes to input costs. Under the current RIT cost thresholds, if the estimated capital cost of the investment option:

  • exceeds $6 million, a RIT T applies
  • exceeds $5 million, a RIT D applies
  • falls below $41 million, a RIT T proponent can skip the 'project assessment draft report' consultation step
  • falls below $10 million, a RIT D proponent can skip the 'draft project assessment report' consultation step
  • falls below $21 million, a RIT D proponent can include its 'final project assessment report' as part of its 'distribution annual planning report

When reviewing the RIT cost thresholds, we will also review the cost thresholds under S5.8(g) and S5.8(b2)(4) of the Rules, which concern how distribution businesses should report on committed investments and network assets in their distribution annual planning reports.

On 11 September 2018, we published a draft determination as part of our cost thresholds review. After we consider written submissions on our draft determination, we will publish a final decision in November 2018.

Separately, the Energy Security Board (ESB) is coordinating the work of the Australian Energy Market Commission, the Australian Energy Regulator and the Australian Energy Market Operator on planning and regulation of the transmission system and interconnection. This review is not impacted by nor does it impact that coordination of work of the ESB.