Values of customer reliability

We have established a VCR Consultative Committee (the Committee). The Committee is a group of persons who represent organisations with a particular interest in VCRs or who have relevant expertise in how VCRs should be determined and with whom the AER considers it should consult before making a decision. While the Committee does not have a decision-making role, the AER considers the views of the group when making decisions.

Committee meetings were held on 28 November 2018 and 7 February 2019. The next Committee meeting will take place on 13 June 2019.

Background

In December 2017 the COAG Energy Council proposed a rule change to the AEMC to give formal responsibility of determining VCR to the AER. The AEMC approved the rule change on 5 July 2018. This rule change requires us to make our first VCR determination by 31 December 2019.

VCRs seek to reflect the value different types of customers place on reliable electricity supply under different conditions and are usually expressed in dollars per kilowatt hour (kWh). VCR is a critical input into identifying efficient levels of network expenditure.

VCRs are widely used in the NEM:

• As an input in most regulatory investment test assessments
• In regulatory resets as a key factor in assessing network's major capital projects and overall capital forecast as part of revenue proposals
• In the distribution service target performance incentive schemes (STPIS) as the key measure for linking outcome performance with the STPIS incentive
• In the setting of transmission and distribution reliability standards and targets
• In reviews to quantify the value of unserved energy
• To inform whole market settings such as market price caps.