The ACCC and NECA are committed to working together to improve the efficiency and effectiveness of the national electricity market. This statement sets out how we intend to deliver on our commitment. We believe that the package of measures set out here, on which we intend to work together to make the most rapid progress possible, represents the first step in improving the current arrangements for network investment and network pricing. This package of measures is aimed at:
- establishing a stable framework for essential new investment both in regulated and unregulated interconnectors, in order to meet the fundamental objective of enabling capacity and reserve to be shared market-wide, and also in new generation
- providing a consistent basis for network pricing that will give improved signals for essential new investment, and ensure that the costs of that investment are met by those who benefit from it
- working towards closer integration of the energy market and network services.
We acknowledge that there is further work that will need to be done beyond these measures. We are committed to working together, and with other stakeholders, further to enhance the network pricing and investment arrangements.
A stable framework for essential new investment
The existing arrangements for the planning and approval of new regulated network investments have been widely criticised, primarily because of the unnecessary delays they impose on essential new investment. We recognise the need to streamline and simplify those arrangements whilst at the same time encouraging a nationwide approach to the planning and strengthening of the transmission network.
The ACCC will shortly publish a draft determination on the package of measures put forward by NECA to put network service providers in the driving seat by giving them primary responsibility for the decision-making process on proposed new regulated network investments.
Under those proposals, new investments would no longer require the approval of either NEMMCO or the Inter-Regional Planning Committee (IRPC), although the IRPC would retain a role in assessing the technical inter-network implications of proposals. The package establishes a streamlined approval process for new investments necessary to ensure the reliability of power supply and a truncated process for small projects below a pre-determined threshold.
This is intended to help restore the balance and allow new regulated network investment projects to move as quickly as possible through their planning and approval stages. Concerns have also been raised about the design and operation of the regulatory test.
The ACCC is committed to ensuring that the test does not result in a complex and lengthy process that delays the development of regulated investments. The ACCC will therefore conduct a review of the regulatory test later this year. It will consult widely as part of that review.
Unregulated interconnectors were from the outset an important feature of the market design. The ACCC and NECA both strongly support the role those links in the national market. The ACCC will shortly release its final determination on the safe harbour provisions for unregulated interconnectors. NECA and the ACCC will also explore, in response to proposals being developed, the scope for expanding that framework to encompass so-called hybrid links.
A consistent basis for network pricing
The ACCC and NECA recognise there is an urgent need to establish a clear framework for network pricing in order to provide certainty for new investment - not only in transmission and distribution networks but also generation, demand-side and other alternatives.
Significant common ground has emerged from NECA's transmission and distribution pricing review and the ACCC's draft determination of the code changes resulting from that review. This common ground includes the need for additional signals for generators and new network investments, the setting of network service standards and publication of performance against those standards, unbundling of charges, and the establishment of a negotiating framework to address the asymmetry of information and bargaining power between network service providers and their customers.
The ACCC and NECA are continuing to work together to resolve a range of other issues. In light of views raised at the ACCC's pre-determination conference and subsequently, and of the further work conducted by NECA, the ACCC is reconsidering the option of a beneficiaries pays proposal for new regulated network investments. The ACCC and NECA are also seeking to develop a clear set of principles and methodology for transmission pricing, which incorporate elements of the proposals in NECA's final report on transmission and distribution pricing and in the ACCC's draft determination, as well as the results of new thinking.
The methodology will be developed in close consultation with governments, transmission network service providers, other Code participants and end-use customers. It will also be subject to modelling and testing before being implemented. The ACCC aims to release its determination on the network pricing Code changes in August.
This approach would implement some essential changes to transmission pricing, including most importantly improving locational signals for customers and generators and correcting the current imbalance between those who benefit from, and those who pay for, network investments.
The ACCC and NECA acknowledge, however, that this is only the first step and that further work will need to be done to develop a set of integrated energy market and network arrangements. This in part requires consideration of the work being conducted on the current regional boundaries as well as the development of a system of property rights.
Closer integration of the energy market and network services
Closer integration of the energy market and network services is crucial to our approach. The draft report of NECA's review of the scope for that integration included proposals for a refined regional structure for the market. NECA is continuing to do further work on those proposals to meet the concerns expressed by stakeholders, including on the key issues of market power and the need to ensure genuine benefits to customers.
NECA's draft report also included proposals for improved risk management through the extension of, and refinements to, the settlement residue auction arrangements; for moves towards firmer access to the transmission network; and for improved arrangements for the treatment of transmission and distribution losses.
The ACCC and NECA are keen to make rapid progress on all of these issues. NECA therefore intends to bring forward draft changes to the code to implement those aspects of its proposals at the first opportunity. The ACCC and NECA are also continuing to work together on a number of other refinements to the market to improve and sharpen the signals for the timing and location of new investment.
For example, the ACCC gave final authorisation in December to an increase in the value of lost load (VOLL) to 10,000/MWh with effect from next April. In light of the request by COAG, however, NECA will very shortly launch a further review of VOLL. The ACCC will shortly give final authorisation, with strengthened conditions, to the new ancillary services markets including most importantly the co-optimisation of the dispatch of energy and ancillary services.
Further, the ACCC has recently published its draft determination on NECA's Code changes governing pricing under extreme conditions.
Conclusion
We believe that the way forward set out here will achieve our objectives of establishing a stable framework for essential new investment, providing a consistent basis for network pricing, and working towards the closer integration of the energy market and network services. As we made clear at the outset of this statement, we are committed to working together to achieve those objectives.
We are also committed to working closely together more generally, importantly to streamline the existing Code change process. The lengthy and repetitive nature of the current process is an increasing frustration to us and to all the stakeholders in the market. We intend to develop ways to improve that process.