The AER has developed a guidance note to improve the predictability and transparency of how we will assess the costs of large transmission projects, identified as ‘actionable’ in AEMO’s Integrated System Plans (ISPs). Our guidance note clarifies the regulatory process for these actionable ISP projects, including for contingent project applications, project staging and ex-post measures, as well as our expectations of transmission network service providers (TNSPs). We expect the guidance note to increase confidence in TNSPs’ cost forecasts and their efficient delivery of these projects.
The guidance note was developed as part of our program of work to support the efficient and timely delivery of large actionable ISP projects. The reforms to make the ISP actionable have changed the way transmission planning is undertaken. AEMO’s 2020 ISP identifies a number of actionable projects which it forecasts to cost between $6.8 and $12.7 billion over the period 2022-32. The magnitude of this investment in large non-recurrent transmission projects is unprecedented, particularly when compared to the current transmission regulatory asset bases ($21.4 billion), which have remained relatively stable over the past decade.
Given these circumstances, we want to ensure our regulatory tools remain fit-for-purpose to effectively assess forecast expenditure for these projects against the criteria set out in the National Electricity Rules. This will promote the efficient and timely delivery of actionable ISP projects, and ensure consumers pay no more than necessary for these large projects, consistent with the National Electricity Objective.
We commenced the guidance note consultation process on 17 November 2020 with the publication of a letter outlining our program of work and initial views. Alongside this letter we published a report by HoustonKemp, which has informed our work program and initial views. HoustonKemp’s report sets out some of the challenges and potential reform options associated with assessing large transmission projects under the regulatory framework. On 18 December 2020, we published a draft guidance note that explains how we propose to regulate actionable ISP projects, followed by a stakeholder forum held on 28 January 2021.
Our initial work program letter identified other potential opportunities to amend the regulatory framework to further improve the assessment and/or delivery outcomes of actionable ISP projects in the medium to longer term. We recognised that other potential reforms could be significant and would require changes to the regulatory framework, energy laws and rules, involving other decision-makers. We intend to progress our thinking on other potential reform areas by contributing to related policy processes being led by the Australian Energy Market Commission (AEMC). We explain this in our letter published alongside the guidance note, noting our aim is to ensure a coordinated work program across market bodies and to streamline the consultation burden for stakeholders.