AER - Explanatory statement - Demand management innovation allowance mechanism (version 1.01) - Transmission - January 2026

After reviewing stakeholders’ submissions, we published our final Demand Management Innovation Allowance Mechanism for electricity transmission networks on 27 May 2021. The reasons for our decision are explained in the accompanying explanatory statement.

Update

As part of the 2023-24 Demand Management Incentive Allowance Mechanism (DMIAM) annual compliance review we noticed errors in the distribution and transmission DMIAM carryover formulae.

In December 2017, the AER published the distribution DMIAM to replace the Demand Management Innovation Allowance (DMIA). The transmission DMIAM was published in May 2021. There was no DMIA for transmission businesses prior to the introduction of the DMIAM.

After results for the five years of the current regulatory control period are known, the AER is required to calculate a carryover adjustment to return the amount of any underspent or unapproved DMIAM amounts to customers. 2023-24 was the first time the AER has been required to apply the DMIAM carryover adjustment.

When we moved from the DMIA to the distribution DMIAM in 2017, we updated the carryover formula to account for the annual updating of the allowed rate of return. The purpose and function of the formula did not change. However, we now know that the simplified formula contained typographical errors. A brief description of the errors in the DMIAM carryover formula is as follows:

• Error 1: The DMIAM carryover formula used the same rate of return value for each year, as derived in year 5 of the regulatory control period, rather than calculating the rate of return value each regulatory year as required under the rate of return instrument.
• Error 2: Rather than taking the time zero value of cumulative carryovers forward to the second year of the subsequent regulatory period (i.e. 7 years), the DMIAM carryover formula inadvertently moved the carryover forward by 28 periods. 

The implication of not fixing the errors in the formula was that we would have been applying DMIAM carryover amounts several times higher than they should be given the intent of the carryover mechanism. 

Essentially the same DMIAM carryover formula applies for DNSPs and TNSPs, so the errors and corrections of the errors are consistent across both mechanisms.

We have now corrected the formulae and have amended the Mechanisms and accompanying Explanatory Statements to reflect the corrections.