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Australia – AEMC Transmission Frameworks Review.

20 May, 2013

 

 

WHAT YOU NEED TO KNOW

 

  • The Australian Energy Market Commission has released its final report of the Transmission Frameworks Review making a package of recommendations for changes to the framework for connecting generators and large loads to the transmission network.


WHAT YOU NEED TO DO

 

  • You will need to watch this space as the Standing Council on Energy and Resources will now consider and make policy decisions on the recommendations in the review.
  • The amendment of the National Electricity Rules as recommended by the Australian Energy Market Commission seeks to remove the current ambiguity in the connection process and strike a fairer balance in the bargaining power between Transmission Network Service Providers and connecting parties.

 

Transmission Frameworks Review


In April 2013, the Australian Energy Market Commission (the AEMC) released its final report of the Transmission Frameworks Review following its review of the transmission arrangements that underpin the National Electricity Market (the NEM). This is the culmination of a three year review undertaken at the direction of the Ministerial Council on Energy, now the Standing Council on Energy and Resources (SCER).


The review in part considers the arrangements for connecting generators and large loads to a transmission network. The intention of this part of the review is to enhance contestability, transparency and clarity in the connection process, whilst ensuring that clear accountability for service outcomes on the shared network is maintained. The final report is available from the AEMC's website by clicking here.


Current situation – AEMC suggests change needed


The AEMC has identified that considerable uncertainty exists under the current connection provisions in the National Electricity Rules (the Rules) as to the services Transmission Network Service Providers (TNSPs) must provide, the scope of the services and the classification of the services for regulatory purposes. Significantly, these factors affect important matters such as:

 

  • how charges are determined;
  • whether the market settlement, metering, technical and performance standards of the Rules will apply to all of the assets to be constructed; and
  • whether a connecting party will have recourse to arbitration if agreement on the terms and conditions of access cannot be reached with the TNSP.


These issues are particularly relevant to any extension that is likely to be required to an existing transmission network in order to connect generation or large load. The cost of such an extension, which will be entirely funded by the connecting generator or large load, is usually considerable and can have a material impact on project funding. Currently, TNSPs generally view the provision of extensions to existing transmission networks as being outside the scope of the Rules.

The AEMC's report identifies that this part of the review attracted significant stakeholder comment. This is not surprising as, in our experience, the scope and classification of the services for regulatory purposes can be a contentious issue in the negotiations between TNSPs and connecting parties, impeding timely and cost-effective connections to the transmission network.


Following careful consideration of all stakeholder comments, the AEMC has made a package of recommendations which it says seek to address:

 

  • the complexity, ambiguity and lack of clarity in the Rules and framework in relation to transmission connections; and
  • the asymmetric power held by TNSPs in negotiating with connecting parties.


AEMC's recommendations


High level principles


Application of the Rules


As a starting point, the AEMC recommends putting beyond doubt that all equipment operated at transmission voltages and interconnected with the rest of the transmission system should be subject to the Rules.


If this recommendation is implemented, this will be a good outcome for connecting generators and large loads, as it means the technical and performance standards, market settlement and metering requirements under the Rules will apply to any extension required in order to connect to the transmission network. Removing the uncertainty as to the application of the Rules will, we believe, remove a number of the contentious issues currently underlying negotiations between TNSPs and connecting parties.

 

Classification of transmission assets


The AEMC considers that the uncertainty surrounding the classification of transmission services (and consequently the application of the Rules) has arisen largely because there is no clear linkage between service classifications in the Rules and the assets underpinning the provision of the service. To remove this uncertainty, the AEMC has recommended that transmission assets be separated into:

 

  • shared transmission assets, which include as a subcategory identified user shared network assets; and
  • dedicated connection assets.


The separate identification of transmission assets will be necessary only for determining who may operate; who is required to pay for; and the extent of the TNSPs obligation to develop the relevant asset. The AEMC's recommendations for this are summarised in the table below.

 

Asset Type Description Paid For By Contestability
Shared Assets

Used by the broad base of consumers.

ie the wider shared network.
 

All market customers
(through TUOS).

 

Built, owned
and operated by TNSP

 

Identified User
Shared Assets

Required for connecting generator or load but not used exclusively by it.


ie those parts of a substation which form part of the shared network but are required solely for the connection of an identifieduser group.
 

Connecting
generator for
generator
connections.
All market
customers,
through TUOS,
for load
connections.
TNSP accountable
for operation,
control and
maintenance.
Construction and
ownership
contestable.
Dedicated Connection
Assets
Required and used exclusively by connecting generator or load. Connecting
generator or
connecting
load.
Construction,
ownership and
operation
contestable.

Table adapted from the Final Report Transmission Frameworks Review (p153)

 

Identified user shared assets


Contestability in construction and ownership


The AEMC recommends greater contestability for the construction and ownership aspects of shared transmission services where it will not compromise the ongoing security and reliability of the transmission system.

 

This proposal allows for contestability and ownership of identified user shared assets in any one of the following ways:

 

OPTION
1
TNSP
Build
TNSP
Own
TNSP
Operate
OPTION
2
Generator/
Load*

Build
TNSP
Own
TNSP
Operate
OPTION
3
Generator/
Load*

Build
Generator/
Load*

Own
TNSP
Operate

* Or a third party contractor engaged by the generator/load

 

Although the connecting party may build and/or own identified user shared assets, the AEMC's recommendations expressly provide that as the TNSP will always have accountability for operation, control and maintenance of all shared network elements (including identified user shared assets), the assets must be constructed in accordance with a design agreed with the TNSP.


The AEMC believes that if these recommendations are implemented, this should give generators and loads greater control in the cost and timing for the provision of identified user shared assets as well as provide the connecting party with countervailing power in negotiations with the TNSP.


Increased transparency for negotiations


The AEMC has recommended that all aspects of the service provided by a TNSP in relation to identified user shared assets be provided as a negotiated transmission service. Additionally, while the current Rules set some "ground rules" for negotiations, the AEMC recommends that the principles in the Rules underlying negotiations should be bolstered and directly applied to all TNSPs. The AEMC believes that updating and extending the negotiating principles in this way will ensure all aspects of the service provided by a TNSP for identified user shared assets are covered by the negotiating principles.


To inform negotiations, the AEMC proposes that TNSP's should be required to publish standard form contracts, design standards, clearer costs breakdowns and pro forma preliminary programs.


Additionally, the AEMC proposes that parties should have a right to seek resolution of disputes and have access to an independent expert review when they are unable to agree on any technical aspects of the negotiations.


The AEMC considers that these recommendations will facilitate more timely and cost-effective connections to the shared network.


Dedicated connection assets


Contestability


The AEMC's recommendations regarding contestability of dedicated connection assets are based on the following underlying factors:


dedicated connection assets will not form part of the shared network – TNSPs can isolate them at the connection point to the shared network if necessary; and the connecting party will bear all risk associated with the quality of the dedicated connection assets.


Given this, the AEMC considers that the provision of dedicated connection assets should be fully contestable so a connecting party can make its own choices on design, build, ownership, operation, control and maintenance (provided minimum standards are reached).


The AEMC considers that there are sufficient providers and barriers to entry are low enough that a connecting party will have an alternative to the TNSP for the provision of these assets.


Interestingly, the AEMC did not consider TNSPs holding compulsory land acquisition powers were a significant barrier to entry for non-TNSP parties. There was considerable debate on this issue during the review process. Ultimately, the AEMC determined that holding compulsory land acquisition powers did not appear to be a significant barrier to non-TNSP parties providing dedicated connection assets. We anticipate that this will be a continuing area of contention and may affect the ability of the proposed reforms to achieve their stated objective of enhancing contestability in the provision of dedicated connection assets.


Third party access


The AEMC considers that the efficient development of the national grid will only be facilitated if all transmission assets are subject to third party access provisions.

 

The AEMC proposes that any party owning transmission voltage plant and equipment (over 2km in length) should be required to:

 

  • register as a TNSP – where third party access requirements in the Rules would apply; or
  • gain exemption from the AER from the requirement to register – where a condition of exemption should be a requirement to negotiate third party access on reasonable terms where a generator or large load wishes to connect.


Additionally, the AEMC considers it would be appropriate for similar protections and principles to those contained in Part IIIA of the Competition and Consumer Act 2010 (Cth) to apply for third party access to dedicated connection assets. Relevantly, these principles include precluding a third party obtaining access that would prevent an existing foundation user obtaining sufficient capacity to meet its reasonably anticipated requirements. Currently, there is no contractual or regulatory mechanism for foundation customers to reserve uncontracted capacity in a transmission network. While it is not yet entirely clear from the AEMC's report, the amendments to the Rules may allow a foundation customer to reserve uncontracted capacity in dedicated connection assets (but not shared assets) which it has fully underwritten.


Next steps


The AEMC has recommended that SCER submit a rule change request to give effect to the package of recommendations regarding connection arrangements.


There is considerable complexity in the drafting of the amending rules to implement the drafting directions in chapter 14 and Appendix C of the AEMC's report and all interested parties should closely follow the development of any draft rules resulting from these recommendations.

 

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For further information, please contact:

 

Paul Newman, Partner, Ashurst
paul.newman@ashurst.com


Teresa Scott, Ashurst
teresa.scott@ashurst.com


Peter Limbers, Partner, Ashurst
peter.limbers@ashurst.com


Liza Carver, Partner, Ashurst
liza.carver@ashurst.com


Joy Hooker, Ashurst
joy.hooker@ashurst.com


Richard Robinson, Ashurst
richard.robinson@ashurst.com


Yun Ho, Ashurst
yun.ho@ashurst.com

 
 
 

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