Transmission troubles: will Vicxit fix-it?

The Victorian Government has introduced legislation into Parliament which would position it to ‘go it alone’ on key parts of current national transmission planning and development. The proposed laws give the Victorian Minister wide-ranging powers to bypass some of the requirements in the national energy regulatory framework.

The National Electricity (Victoria) Amendment Bill 2020 (the Bill) is intended to ‘facilitate or expedite specified transmission system augmentations or services to improve the reliability of electricity supply in Victoria and for other purposes’.

So, what exactly would the new legislation change?

The original National Electricity (Victoria) Act 2005 (the Act) essentially applies the National Electricity Law in Victoria. Part 3 of the Bill specifies ‘carved out’ areas where the National Electricity Law or National Electricity Rules will not apply in Victoria and where other arrangements may be adopted instead.

The proposed new laws would insert a new section into the Act, exempting Victoria from more aspects of agreed National Electricity Laws than previously and creating new bespoke arrangements.

What’s in the legislation?

Specifically, the legislation would modify the National Electricity Rules as they apply in Victoria to provide the Victorian Minister for Energy with the ability to specify augmentations and services to the transmission system through a Ministerial Order.[i] So the Minister can direct the construction of new transmission lines or upgrades to existing lines.

Proposed augmentations are subject to various regulatory requirements under the National Electricity Law and National Electricity Rules which this legislation removes.

Essentially, this legislation re-writes the process for Victorian transmission augmentation. Augmentation traditionally occurs when networks require upgrading due to additional demand on the network.

Ministerial powers over transmission augmentations

Under the proposed changes, the Minister is essentially able to direct what gets built and where meaning a direction could be to have a battery installed on the network or to build more traditional poles and wires.

The new legislation also specifies that the Minister may sidestep the Regulatory Investment Test (RIT-T), which aims to identify the transmission investment option that maximises net market benefits. While the RIT-T has rightly been criticised for being slow, burdensome and not designed to maximise customer benefits, bypassing it completely is a major change that has already triggered concerns from energy user advocates.

The Minister would be able to – but notably does not have to – undertake a new assessment in place of the RIT-T. The Minister would be able to specify the guidelines on which a new assessment would be based.

The Minister could require the Australian Energy Market Operator (AEMO) to undertake a tender process to procure augmentation, augmentation services or non-network services.

The legislation would allow the Minister to specify what charges could be recovered from Victorian electricity customers and how they would be recovered.

AEMO is also empowered under the proposed legislation to recover any costs it incurs either as a result of the Minister’s specified augmentation or by complying with any requirements given under the Ministerial Order.

The Minister would be able to specify the terms and conditions that must be included in any agreement AEMO makes as the transmission system operator in Victoria.

Optional legislative guidance for decisions

Section 16Z sets out the matters which the Minister may – but not must – have regard to when making a Ministerial Order. These include

• whether there is a ‘crucial electricity system need’ and if there are any other avenues to address the need;
• the potential costs to customers;
• the needs of the electricity system both now and into the future and the level of actual or projected generation in the electricity system; and
• any other matter the minister considers relevant.

Section 16ZA places a requirement on the Minister to ‘consult’ with the Premier, the Treasurer and AEMO before making an order instead of the traditional RIT-T which requires robust consultation with many stakeholders on various investment options.

Alongside an Order, the Minister would have to publish the reasons for making it to provide a measure of transparency.

What does it mean for the industry?

With yesterday’s new Bill still hot to the touch, it’s too early to tell exactly what effect it will have on the Victorian transmission system planning and national system planning more broadly.

The Minister’s media release says “first step to secure additional transmission capacity the Government will ask AEMO to call for expressions of interest to increase the capacity of the Victoria-New South Wales Interconnector.”

Exactly how this will play out when half of that interconnector sits in NSW, outside the Minister’s jurisdiction, remains to be seen.

Plainly, the intended purpose of the legislation is to increase the reliability of electricity supply in Victoria. Transmission investment has been too slow across the country for quite some time. This Bill clearly has the levers for investment to be fast-tracked; the challenge will be ensuring Victorians are comfortable the benefits they get from these investments justify the costs.

Although there are lots of questions, it’s clear that this legislation is a substantial new regulatory intervention that the Victorian Government believes will allow it to deliver a more connected future.

The bill has been adjourned and is scheduled for further debate on Wednesday 4 March 2020.

[i] Section 16Y