The Australian Energy Regulator has today published our assessment of Ergon Energy’s request to not reapply the regulatory investment test for distribution (RIT-D) in relation to a project to replace a static var compensator in its substation in Charleville, Queensland.
Following our assessment of Ergon Energy’s request, we confirm that Ergon Energy is required to reapply the RIT-D for its Charleville project. We consider the reapplication of the RIT-D will provide an opportunity to identify the most efficient solution in the long-term interest of consumers.
Regulatory investment tests are a cost benefit analysis test which network businesses must apply before making major investment in their networks to address an identified need.
Ergon Energy’s request highlighted a material change in circumstances due to an increasingly urgent need for action to address reliability concerns and a significant increase in the cost of the preferred option.
From our assessment of the information available, it appears that delays and cost increases underpinning the material change in circumstances were largely the result of Ergon Energy’s own actions. Specifically, Ergon Energy:
- failed to implement the AER's recommendation to extend the draft project assessment report consultation period to enable non-network proponents to engage properly
- did not seek to implement the preferred option with any haste, taking time to publish a Request for Proposal in 2021 following the RIT-D in 2019 and providing information late to the provider of the preferred option in the period following the Request for Proposal
- gave very late consideration to the connection requirements and therefore the costs of the project.
In relation to Ergon Energy’s reliability concerns, we understand that there are backup mechanisms available which can address these concerns. Additionally, we note that a reapplication of the RIT-D would be limited to adding several months to an overall timeframe of up to 5 years to address the identified need.
We expect network businesses to properly apply regulatory investment tests to ensure consumers are not paying more than necessary for a reliable network. It is also important that these projects are then promptly implemented to avoid letting reliability concerns go unaddressed.
Ergon Energy is required to reapply the RIT-D for this project in accordance with the requirements of the National Electricity Rules and our RIT-D guidelines.