Submission to the AEMC consultation on Accommodating financeability in the regulatory framework

PIAC provided a response to the Australian Energy Market Commission’s (AEMC) consultation on Accommodating financeability in the regulatory framework.

The consultation brought together two rule change applications from federal Energy Minister Chris Bowen and Energy Networks Australia. Both applications are seeking to give the Australian Energy Regulator (AER) new powers to alter the depreciation paths of large, important transmission infrastructure projects, and so bring revenue for transmission service providers forward in time.

PIAC is not convinced a financeability problem exists. Investment opportunities in large infrastructure assets like transmission lines are attractive to many portfolio investors. Being backed by implicit or explicit government assurance and strongly inelastic demand, they offer predictable operating cash flows, and are often a natural hedge against inflation. With high entry barriers, returns are often high for the low risk levels. And the assets in question are likely to qualify for investment by green vehicles, such as ethical superannuation funds.

Given this, the problem that both rule change requests aim to solve – how to bring revenue flows for TNSPs forward – is misplaced. The problem should be how to connect the supply of capital willing to invest at the regulated rates of return with these assets.

To do this, PIAC proposes that contestability is opened up to investment in transmission assets. Parties outside of the incumbent monopoly providers in each NEM jurisdiction should be able to invest in, and possibly own and even build, transmission assets. Operation of the assets should always remain with the incumbent TNSPs.

This would drive costs of energy downwards for consumers, as well as resolve the financeability ‘problem’ without the intergenerational inequities that altering depreciation paths would create.