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The Australian Energy Market Commission has decided to retain existing energy rules, rather than accept a proposed change from TransGrid and ElectraNet to expedite cash flows for certain large-scale transmission projects.

The AEMC Commission also concluded that the existing rules are not an impediment to financing, whilst the proposed changes would leave consumers facing higher up front costs. 

The final determinations respond to requests from transmission network businesses TransGrid and ElectraNet, who want planned large-scale transmission projects outlined in the Integrated System Plan (ISP) to be treated differently under the rules. These projects include Project EnergyConnect, the Victoria New South Wales Interconnector (VNI) minor and HumeLink. 

The AEMC’s final determinations are the same as its draft determinations published on 4 February 2021. 

The final determinations followed detailed consultations and consideration of submissions from a range of stakeholders including the two businesses, the Australian Energy Regulator, the Australian Competition and Consumer Commission, major user groups and several gentailers.

The AEMC also commissioned analysis from Cambridge Economic Policy Associates (CEPA) for advice on whether the rules were a barrier to financing. After the draft determination the AEMC re-engaged CEPA to consider specific issues raised by network businesses including the proponents.

In their rule change requests, TransGrid and ElectraNet had sought to make changes to the way they generate returns so they could access cash flows from consumers sooner. 

The two businesses had raised concerns about the impact of the existing rules on their ability to secure financing for the projects. 

The AEMC has found the current rules do not prevent these projects attracting finance.

It also found the changes suggested by TransGrid and ElectraNet would have significant downsides for consumers.

Both final determinations state that the proposed changes “would likely substantially increase costs to consumers in the near to medium term”, with lower prices later in the life of the asset.

The determinations state “the intergenerational wealth transfer caused by the proposed changes to the rules would be unlikely to be in the long-term interests of consumers, particularly given that current consumers would be paying for benefits enjoyed by future consumers”.

The AEMC’s final determinations also say the requests would make the regulatory framework more complex, increasing the costs of regulation and reducing incentives for networks to build projects on time.

The proposal to change the rules related to all of TransGrid and ElectraNet’s projects under the ISP. The ISP is prepared by the Australian Energy Market Operator (AEMO). It outlines a suite of major projects, including large-scale transmission infrastructure. 

The AEMC found the rule change requests raised issues about timely investment in ISP projects but doesn’t believe the proposals would deal with these.

In the future, the AEMC plans to work with its market body colleagues to look at options for supporting large transmission projects that would benefit consumers over the long term as part of a broader review.

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