Maximising network utilisation

The objective of the Access Code has remained unchanged since its inception in 2004 and is linked to the Competition Principles Agreement, which was focused on the promotion of competition.

The establishment of the National Electricity Law in 2005 introduced a national objective to reflect the promotion of competition was not an end in itself, but a means to improve outcomes for electricity consumers. The proposed changes to the Access Code objective build on the national regime and explicitly focus on the regulation of network services in the long-term interests of consumers. To reflect the changing nature of electricity networks, it is proposed that the Access Code objective be split into three ‘limbs’ that deal with:

• the regulation of access to the services of networks,
• the quality, security and reliability of covered networks to better facilitate the governance of the Technical Rules; and
• the environmental implications of the supply of electricity via networks.

These changes also reflect the Energy Transformation Strategy’s focus on the continued security and reliability of electricity supplies, and the opportunity for technological change to drive environmental objectives in the transition to a lower carbon electricity supply for consumers.

Pricing structures can be an important lever for network service providers to maximise the utilisation of their existing network.

However, the Access Code does not explicitly require a network service provider to consult with end-use customers on its reference tariffs prior to lodging an access arrangement. Without this engagement, the effectiveness of network pricing structures and signals can be limited.

Two changes to the Access Code are proposed to provide greater opportunities for retailers and end-use customers to engage in the formulation of the reference tariffs:

• Western Power will decide on types of reference tariffs through a Framework and Approach process.
• Western Power will be required to submit Tariff Structure Statement (TSS), emulating the national regulatory regime, in conjunction with its Price List obligations.

The availability and declining cost of new technologies (particularly storage and distributed generation) means that end-use customers will have a real choice between receiving some or all of their electricity supply from the grid or investing in their own supply.

The regulatory framework should encourage a network service provider to take steps to retain those customers where it is efficient to do so, as well as seeking to improve the utilisation of its network by efficiently signalling the costs that customers impose on the network.

The proposed changes seek to review and streamline the pricing principles in the Access Code, to better enable the provision of appropriate pricing signals for utilisation of, and therefore efficient investment in, the network.

The changes incorporate concepts under the national regime, and intend to provide greater clarity for Western Power and the ERA on the elements to be considered in structuring and setting reference tariffs.

Changes in volumes and costs can potentially lead to large tariff increases for some customers between consecutive access arrangements.

One of the Access Code’s current pricing objectives is that the structure of reference tariffs should avoid price shocks, or “sudden material tariff adjustments between succeeding years”. However, the objective provides no guidance on interpretation of a ‘material tariff adjustment’, nor how to alleviate any adjustments.

To reduce the incidence of sudden and dramatic tariff movements, it is proposed the Access Code be amended to require the difference between expected revenue and target revenue in the last pricing year of an access arrangement to be minimised.

The Taskforce notes that in the short-term this provision may have the effect of larger than expected increases in tariffs between access arrangement periods, but over the long-term will have the effect of reducing the likelihood of material changes in tariffs between access arrangements.

The Taskforce considers that implementation of the complete AMI solution, including the communications infrastructure, is essential to enable the technical functionality required to deliver safe and reliable supply, and manage a high-DER future.

The proposed approach to provide for the cost recovery of the communications component of AMI is to use similar provisions to those used for the recovery of deferred revenue. That is, to include a specific provision for AMI as an input to the building block process.

Under current network access arrangements, generators seeking to connect where there is insufficient spare capacity on the Western Power network are required to bear the cost of augmenting the network themselves. These costs can be prohibitive and create a barrier to investment in newer, more efficient forms of generation capacity.

Reforms to the Access Code will enable generators to access the transmission network without the need to augment the network, and provide a greater return on investment for existing network infrastructure by optimising use of the grid. These changes complement the reforms being progressed to the WEM under the Western Australian Government’s Energy Transformation Strategy.

Other changes being proposed relate to the transfer of user rights to a third party (including the removal of bare transfer provisions), and the removal of ‘contracted capacity’ transfer provisions.

The new constrained access framework and WEM arrangements require AEMO to use Constraint Equations to calculate dispatch outcomes and to inform allocation of Capacity Credits. AEMO will develop the Constraint Equations based on information ('Limit Advice') provided by Western Power.

Proposed amendments to the Access Code will enable Western Power to recover the efficient and prudent costs of providing Limit Advice to AEMO and associated activities.

More information about the governance of power system Constraint Equations is available here.