ACCC decision on Murraylink interconnector ensures level playing field for transmission investment in National Electricity Market
The Australian Competition and Consumer Commission today approved the conversion of the Murraylink interconnector to a regulated interconnector.
ACCC Commissioner Mr John Martin said the ACCC had determined there are substantial benefits in Murraylink operating as a regulated interconnector.
“For example, it should ensure a constant transfer of power from Victoria to South Australia, providing South Australian customers with access to lower cost electricity from Victoria and New South Wales," he said.
In reaching its decision, the ACCC applied a cost-benefit analysis, to determine both the benefits of the interconnector to electricity consumers and producers and the most efficient way of building the interconnector.
“This approach takes into account the needs of the market and ensures consistency with the process used by other transmission businesses in the National Electricity Market for assessing new interconnector investments,” said Mr Martin.
The ACCC set revenues for the Murraylink interconnector some 50 per cent below those sought by the interconnector owner.
Revenues were capped for a ten year period ranging from $8.9 million in 2003/04 to $12.72 million in 2012/13. The revenue cap is based on a post-tax nominal return on equity of 11.44 per cent and an opening asset balance of $97.33 million.
This is in line with the regulatory principles outlined in the National Electricity Code and the ACCC’s Draft Principles for the Regulation of Transmission Revenues.
"The ACCC believes this decision sends appropriate signals to the market. While the ACCC will only provide returns to transmission businesses on efficient investment decisions, those decisions, particularly those based on the regulatory test, are unlikely to face the same sort of optimisation risk at future revenue resets," said Mr Martin.
Further information: Mr John Martin, Commissioner, (02) 6243 1130 Mr Joe Dimasi, Executive General Manager, (03) 9290 1814 Ms Janet Millar, Acting Director, Public Relations, (02) 6243 1108
The National Electricity Code (code) establishes two frameworks for the development of network services in the National Electricity Market - regulated and unregulated network services.
Regulated transmission services earn regulated revenue determined by the ACCC in accordance with chapter 6 of the code.
Unregulated interconnectors earn revenue from trading in the wholesale electricity market in accordance with chapter 3 of the code. They rely on the spot price differential between the interconnected regions, or contractual arrangements, to earn revenue.
The Murraylink interconnector connects Victoria and South Australia and is currently operating as an unregulated interconnector. By converting to a regulated interconnector it will earn regulated revenue as determined by the ACCC.
The framework allowing unregulated interconnectors in the NEM was the first of its kind in the world. No other market allows both regulated and unregulated interconnectors to coexist in the way that the NEM does.
In recognition of the experimental nature of unregulated interconnectors, it was always thought that they should be given the ability to convert to regulated interconnectors. However, conversion would only occur if approved by the ACCC and at a value that it deemed to be efficient. The conversion option is not intended to shield an unregulated interconnector from inefficient investment decisions.
