Regulatory Arrangements to Support the Power Line Bushfire Safety Program

The Australian Energy Regulator (AER) welcomes the opportunity to comment on the Regulatory Arrangements to Support the Power Line Bushfire Safety Program consultation paper. The consultation paper seeks stakeholder views on the preferable mechanisms of the Powerline Bushfire Safety Taskforce (PBST) implementation of the Victorian Bushfires Royal Commission (VBRC) Recommendation 27 and the likely cost recovery outcome.

The AER sets the prices for using electricity networks in Queensland, New South Wales, Victoria, South Australia, Tasmania, and the ACT; and for gas pipelines in all jurisdictions other than Western Australia.

The AER does not have a definitive view on the preferable mechanisms for implementing the VBRC Recommendation 27. Generally for significant new obligations, the AER considers it desirable for a broader process of decision making which then can be scrutinised by a widespread stakeholder group.

As stated in your Consultation Paper, 'regulatory arrangements will need to be put in place, and amended DNSP implementation plans approved by Energy Safe Victoria, before applications for cost recovery can be made to the AER' (page 3). The AER notes the inherent timeframe of implementing the VBRC Recommendation 27 will likely result in less impact on the current regulatory period (2011 -15). The more significant related expenditure would become part of the broader distribution network service provider (DNSP) proposals for the next regulatory control period (2016-20).

The pass through regime enables DNSPs to pass through costs to customers that occur during a regulatory control period, but were not anticipated or able to be estimated at the time the distribution determination relating to that regulatory control period was made. In such cases, the AER's role is to assess the pass through application against the pass through provisions in clause 6.6.1 of the National Electricity Rules (NER). Clause 6.6.1 (a) of the NER states that if a positive change event occurs, a DNSP may seek the approval of the AER to pass through to distribution network users a positive pass through amount.

The cost recovery approach for a positive change event is for the Distribution Network Service Provider (DNSP) to submit a pass through application to the AER. Pass through events are normally classified into one of four pre-defined categories. These categories are: regulatory change event; service standard event (which appears most relevant in this case); tax change event; and terrorism event. For the purposes of determining whether a service standard event has occurred, the AER must consider whether the administrative act or decision materially increases or materially decreases the costs to the DNSP of providing direct control services. The NER does not define 'costs'. A quantitative assessment is an important aspect of determining if an event is 'material'. A materiality threshold is not currently prescribed by the NER, but this is currently being reviewed - see below.

The AER's experience to date is that pass through applications arising from implementation of the VBRC recommendations have been complex. Clause 6.6.1(e) of the NER requires the AER to make a determination under clause 6.6.1(d) of the NER within 60 business days from receipt of a DNSP's application and all necessary supporting information. Pass through events frequently involve multiple components, detailed calculations and interlinked expenditure. The timeframe currently available to the AER to assess pass through applications is not compatible with sound decision making for complex matters. The restricted timeframe also restricts the ability of the AER to adequately consult other stakeholders.

The AER has submitted a rule change proposal to the Australian Energy Market Commission (AEMC) regarding economic regulation of network businesses. Included in this proposal are changes to extend the timeframe of the decision if it involves questions of unusual complexity or if further information is required from the DNSP. The proposal also addresses the question of materiality. The AEMC draft decision was issued on 23 August 2012, which has accepted the AER's proposals. This Rule change will not take effect until the AEMC confirms this position and finalises its decision, which is not expected before November 2012.

If this proposed Rule is not adopted, it would be preferable for the cost recovery to be processed under a different mechanism than as a pass through. In deciding its preferred approach the Victorian Government should consider the limitations placed on the AER by the NER, which may cause difficulty for the AER to provide for the appropriate scrutiny over this cost recovery.

Yours sincerely

Chris Pattas
General Manager
Network Operations & Development

Page last updated: 09/06/17