AER issues regulatory test for electricity networks

The Australian Energy Regulator today issued a revised regulatory test for electricity network businesses along with explanatory and dispute resolution guidelines.

The regulatory test is used by transmission and distribution businesses in the National Electricity Market (NEM) to assess the efficiency of network investment proposals.

"The AER's revisions simplify and clarify aspects of the regulatory test and align the regulatory test to the National Electricity Rules issued by the Australian Energy Market Commission (AEMC) at the end of last year," AER Chairman, Mr Steve Edwell, said today.

"Stakeholder feedback supports retaining the regulatory test with minimal changes. Accordingly the AER has maintained the regulatory test in its current form with two distinct limbs- the reliability limb and the market benefits limb.

"Looking forward, the AER will provide input into the AEMC's work to integrate the two limbs of the regulatory test as part of the implementation of national transmission planning arrangements.

"In conjunction with the revised regulatory test, the AER has developed its first regulatory test application guidelines. These are designed to provide greater guidance to businesses applying the regulatory test, and enhance transparency and consistency in investment decision making.

"The AER has also issued regulatory test dispute resolution guidelines to assist parties in understanding the regulatory test dispute resolution rules and process.

"The AER is the primary dispute resolution body for regulatory test disputes. The dispute resolution guidelines set out information about the dispute process and provide a clear indication of what the AER expects in terms of early engagement and cooperation from disputing parties given the restrictive timeframes that apply to disputes."

The regulatory test documents will be available at the AER's website.


In 2005 the Ministerial Council on Energy proposed a rule change to insert a set of principles into the National Electricity Rules (NER) to guide the AER in developing the regulatory test. The AEMC implemented this rule change in November 2006. The AER was then required to review the regulatory test to ensure it is consistent with the principles in the NER. The regulatory test is to be re issued by the end of 2007.

The regulatory test is made up of two limbs- the reliability limb and the market benefits limb. The reliability limb requires electricity network businesses to minimise the costs of any investment directed at achieving statutory reliability obligations. The market benefits limb requires electricity network businesses to conduct a full cost-benefit analysis of investment proposals. Under this limb the network business must select the project that maximises the market benefits of the investment.

Issued date: 
2 November 2007
AER reference: 
NR 016/07
Steve Edwell, AER Chairman 03 9290 1421 0423 047 554
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