The Australian Energy Regulator (AER) has announced that it will make improvements to its Regulatory Investment Test (RIT) guideline to make it more robust, efficient and timely, following a review of the test for transmission networks (RIT-T) in 2017.

AER Chair, Paula Conboy, said, “The cost-benefit focus of the RITs is critical for promoting efficient investment in electricity networks. Good guidance helps network businesses apply a robust, consistent and transparent analysis.

“It also supports this critical aspect of effective regulation to be undertaken in a timely and efficient way.”

Improvements to the guideline, recommended as part of a review into the RIT-T by the Council of Australian Governments Energy Council (COAG EC), have been included, accounting for option value, policy developments and high impact, low probability events.

“We are providing clear guidance to support robust processes and strong analysis in the first instance. This will reduce the amount of time taken by networks to finalise processes and reduce disputes,” Ms Conboy said.

Following an AER request for changes to the rules, RITs now apply to large replacement projects, rather than just augmentation projects.

“Network businesses are now applying a transparent cost–benefit analysis to their large replacement projects. This is a big improvement. Our new guidance will be important for supporting clear and robust analysis of replacement expenditure,” Ms Conboy said.

The proposed changes to the RIT guidance support a system-wide approach to planning for the National Energy Market. They have been developed to complement the recommendations of the Australian Energy Market Operator’s proposed integrated system plan (ISP) by identifying which transmission upgrades and interconnectors should be provided through regulated revenues.

Further work on strengthening the role of the ISP, cost-benefit tools, such as the RIT and the way they are integrated, is being undertaken by the Australian Energy Market Commission and co-ordinated by the Energy Security Board. 

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