COST ALLOCATION POLICY FOR VICTORIAN TERMINAL STATIONS PRESCRIBED PREPARED BY: Netwrk Develpment VERSION: 1.0 RELEASE DATE: 30 May 2012
Versin Release Histry Versin Date By 1.0 30 May 12 Netwrk Develpment
This dcument is made available t yu n the fllwing basis: a. Purpse This Plicy has been prduced by the Australian Energy Market Operatr Limited (AEMO) t prvide infrmatin abut shared netwrk cnnectins in Victria as at the date f publicatin. b. N substitute This Plicy is nt a substitute fr, and shuld nt be read in lieu f, the Natinal Electricity Law (NEL), the Natinal Electricity Rules (NER) r any ther relevant laws, cdes, rules, prcedures r plicies. Further, the cntents f this Plicy d nt cnstitute legal r business advice and shuld nt be relied n as a substitute fr btaining detailed advice abut the NEL, the NER, r any ther relevant laws, cdes, rules, prcedures r plicies, r any aspect f the natinal electricity market r the electricity industry. c. N Warranty While AEMO has used due care and skill in the prductin f this Plicy, neither AEMO, nr any f its emplyees, agents and cnsultants make any representatin r warranty as t the accuracy, reliability, cmpleteness r suitability fr particular purpses f the infrmatin in this Plicy. d. Limitatin f liability T the extent permitted by law, AEMO and its advisers, cnsultants and ther cntributrs t this Plicy (r their respective assciated cmpanies, businesses, partners, directrs, fficers r emplyees) shall nt be liable fr any errrs, missins, defects r misrepresentatins in the infrmatin cntained in this Plicy, r fr any lss r damage suffered by persns wh use r rely n such infrmatin (including by reasn f negligence, negligent misstatement r therwise). 2012 Australian Energy Market Operatr
CONTENTS 1 Purpse... 5 2 Applicatin... 5 3 Legal and Regulatry Framewrk... 6 4 Related Plicies and Prcedures... 6 5 General Cncepts... 6 6 Principles... 7 7 Plicy... 8 7.1 Initial Cnnectin... 8 7.2 Expansin Cnnectins... 9 8 Further Develpment...11 8.1 Lad Cnnectins... 11 8.2 Transmissin Framewrks Review... 11 APPENDIX A: Prescribed Wrks Required fr Future Expansin f a Terminal Statin... 12 V 1.0 30 May 2012 Page 4 f 12
1 Purpse AEMO has develped this Cst Allcatin Plicy fr Victrian Terminal Statins Prescribed Transmissin Services (Plicy) t utline hw the csts assciated with new r expanded terminal statins n the Victrian declared shared netwrk (DSN) may be allcated between negtiated and prescribed transmissin services. AEMO s Cst Allcatin Plicy fr Victrian Terminal Statins Negtiated Transmissin Services utlines hw AEMO determines the sharing f negtiated transmissin service csts between cnnecting parties. The cnnectin f multiple generatrs at a single terminal statin will result in a mre efficient prcess fr the cnnectin f generatrs. This will deliver savings t generatrs and cnsumers. In line with these benefits, the csts incurred in augmenting the DSN t establish r expand these terminal statins may be allcated amng bth generatrs (in relatin t negtiated transmissin services) and cnsumers (in relatin t prescribed transmissin services). AEMO has develped this plicy in respnse t receiving a significant number f cnnectin applicatins within clse physical prximity t ne anther in recent years. Multi cnnectin terminal statins ffer a number f advantages ver single (r stand alne) cnnectin terminal statins, including the fllwing: Fewer cut-ins t the cnnecting transmissin lines, with an assciated imprvement in security; Lwer verall cnnectin csts and better utilisatin f terminal statin assets, this is expected t ultimately reduce csts t cnnectin applicants and cnsumers; Shrter lead times fr applicants cnnecting t an existing terminal statin as cmpared t building a new separate terminal statin; Increased likelihd f multi cnnectin terminal statins being cnnected t additinal transmissin lines in the future, reducing cnstraints n individual cnnectins. This Plicy explains hw the cst f incremental wrks t facilitate future cnnectins (but which wuld nt be required t meet an individual cnnectin applicant s requirements), may be allcated t prescribed transmissin services where they will prvide net benefits t users. The Plicy als explains the criteria fr determining expansin enabling wrks and the nature f the wrks required. 2 Applicatin At this stage, the Plicy applies nly t the cnnectin f generatrs. This Plicy cvers tw different situatins where a cmpnent f the csts f establishing r augmenting a terminal statin may be allcated t prescribed services. These situatins are: A cnnectin requiring the cnstructin f a new terminal statin (Initial Cnnectin); A cnnectin requiring the expansin f an existing terminal statin (Expansin Cnnectin). This Plicy applies irrespective f whether the relevant transmissin netwrk augmentatin is cntestable under rule 8.11 f the NER. This Plicy will nt nrmally apply t Incremental Cnnectins which require nly minimal expansin t an existing terminal statin (e.g. establishment f a single cnnecting bay). Incremental Cnnectin t an existing terminal statin in reasnable prximity t the generatin is expected t be the least cst ptin and s shuld be the mst attractive t the applicant. Where Incremental Cnnectin t an existing terminal statin is nt the least cst ptin it is anticipated that the new generatin wuld be utside the ptimal area fr cnnectin and that n significant market benefits beynd thse f a dedicated cnnectin wuld be achieved. V 1.0 30 May 2012 Page 5 f 12
3 Legal and Regulatry Framewrk AEMO has develped this Plicy in accrdance with its declared netwrk functins under the Natinal Electricity Law, specifically: T plan and direct augmentatin f the DSN; T prvide shared transmissin services by means f, r in cnnectin with, the DSN; and T prvide infrmatin abut the planning prcesses fr augmentatin f the DSN and t facilitate decisins fr investment and the use f resurces in the Victrian electricity industry. In accrdance with the abve functins, AEMO is the prvider f shared transmissin services in Victria and the party that applicants are required t apprach when seeking cnnectin t the DSN. Cnnectin t the DSN is gverned by Chapter 5 f the NER, while Chapter 6A gverns the pricing f shared transmissin services. In determining this Plicy, AEMO has als been guided by the natinal electricity bjective, which seeks t prmte the efficient peratin and investment in the market fr the lng-term benefit f cnsumers, taking accunt f price, quality, reliability, security and safety. 4 Related Plicies and Prcedures This Plicy shuld be read with the fllwing: Guidelines fr Establishing Terminal Statins. Guidelines fr Shared Transmissin Cnnectins. Plicy n the Active Management f Victrian Cnnectin Applicatins. Cst Allcatin Plicy Fr Victrian Terminal Statins Negtiated Transmissin Services Cnnecting Victria: Transmissin Prject Develpment Prtcl Applicatin f RIT-T t Multi-Cnnectin Terminal Statins. 5 General Cncepts The csts assciated with the establishment f a terminal statin, and its subsequent use, are calculated by reference t the capital cst f establishing the relevant infrastructure plus the nging cst f perating and maintaining it. The csts assciated with the expansin f a terminal statin will be similarly calculated. When a new cnnectin creates a requirement t establish r expand a terminal statin, the csts relating t that augmentatin f the transmissin netwrk are recvered frm the cnnectin applicant thrugh negtiated transmissin service charges. Hwever, under clause 6A.9.1(2) f the NER, the price fr negtiated transmissin services shuld nt exceed the cst f prviding them n a stand alne basis. Optimal develpment f the DSN requires that, where apprpriate, new terminal statins shuld be lcated and cnstructed s as t facilitate future expansin and that existing terminal statins are effectively utilised befre additinal terminal statins are built in the vicinity. Fr an individual new cnnectin, prvisin fr expansin capacity r relcatin frm the psitin preferred by the applicant may result in additinal csts which d nt need t be incurred fr that individual cnnectin and therefre exceed the stand alne cst. The additinal csts d nt relate t the prvisin f a negtiated transmissin service but, where ecnmically justified, they may be allcated t the prvisin f prescribed transmissin services. AEMO is nt prpsing t justify the cnstructin f cnnectin assets within a terminal statin. Any terminal statin wrks t enable future expansin will relate t the shared netwrk and facilities cmmn t all parties cnnected t a terminal statin. V 1.0 30 May 2012 Page 6 f 12
Any additinal csts assciated with the cnnectin between a generatr and terminal statin (fr example a lnger cnnecting line) wuld be justified nly as part f an integrated slutin invlving relcating cnstructin f a new terminal statin frm an applicant s preferred stand alne lcatin (with minimum cnnectin asset cst) t a lcatin prviding maximum verall market benefit. This is cnsistent with clause 5.6.5C(e) f the NER. 6 Principles The develpment f new terminal statins shuld nt lead t applicants incurring csts in excess f thse that wuld be incurred fr a stand alne cnnectin. Hwever, additinal csts may be incurred under the fllwing circumstances: At terminal statin establishment in rder t allw fr future expansin; Cnnectin t a new terminal statin at an alternative lcatin; r Cnnectin t an existing terminal statin at an alternative lcatin, where majr expansin is required t enable the cnnectin. Where AEMO determines that thse additinal csts relate t the prvisin f prescribed transmissin services under the NER, AEMO prpses t recver them thrugh prescribed transmissin service charges, subject t satisfactin f a regulatry investment test fr transmissin (RIT-T) where required. If the incremental capital csts are nt expected t exceed $5 millin, a RIT-T is nt required under the NER, but AEMO will instead cnduct a cst-benefit test. Where csts in excess f a stand alne cnnectin cannt be justified thrugh the applicatin f a RIT-T, the new terminal statin will be develped as a stand alne cnnectin (withut prvisin fr future expansin) and all csts will be recvered frm the applicant as negtiated transmissin service charges. AEMO has develped this Plicy t prmte the fllwing within the DSN: Ecnmic efficiency in transmissin netwrk cnnectins; Transparency and certainty in charging arrangements fr cnnectin applicants; Efficient develpment f terminal statins, with emphasis n prviding expandability f new terminal statins and increased utilisatin f existing terminal statins, where ecnmically justified. Applicatin f these principles results in the fllwing utcmes: Applicants will pay n mre than the cst f a stand alne cnnectin, while new cnnecting terminal statins may be cnstructed with expansin capacity (and in sme cases relcated at the planning stage) r existing terminal statins expanded where apprpriate t maximise verall market benefits; Where the incremental csts f allwing fr future expansin abve the cst f a stand alne cnnectin, including any additinal land r augmentatin wrks, will cntribute t the prvisin f prescribed transmissin services, thse incremental csts will be allcated t prescribed transmissin service charges if they are justified under the RIT-T; The investment t which the RIT-T is applied will include any additinal csts assciated with the relcatin f the planned cnnectin (if agreed between AEMO and the applicant) t an alternative lcatin nminated by AEMO; The remaining csts will be allcated t the prvisin f negtiated transmissin services and will be allcated between cnnectin applicants, as described in the Cst Allcatin Plicy Fr Victrian Terminal Statins Negtiated Transmissin Services. V 1.0 30 May 2012 Page 7 f 12
7 Plicy 7.1 Initial Cnnectin New terminal statins will be designed in accrdance with AEMO s Guidelines fr Establishing Terminal Statins, with the initial cnnectin being in accrdance with AEMO s Guidelines fr Shared Transmissin Cnnectins. AEMO may specify a design invlving additinal statin wrks (including acquisitin r reservatin f land) t accmmdate future netwrk develpments and anticipated future cnnectins. The criteria fr determining these wrks and the types f wrks likely t be required are listed in Appendix A. Where additinal statin wrks are specified, the applicant will nt be required t pay mre than it wuld have paid fr a stand alne cnnectin. This means that thse additinal wrks will nly prceed if they will relate t the prvisin f prescribed transmissin services and their estimated cst satisfies a RIT-T assessment. 1 The lcatin f a new terminal statin will nrmally be determined by the applicant prir t AEMO cnducting a RIT-T assessment. The applicant will be able t select the lcatin f a new terminal statin fr its cnnectin, subject t AEMO s agreement n fair and reasnable terms. AEMO may nminate an alternative lcatin fr the new terminal statin, based n prximity t transmissin infrastructure r anticipated future cnnectins. In this case, AEMO will prvide infrmatin t the applicant that will enable it t cmpare the cnnectin csts, pprtunity fr cst sharing and nging csts f a cnnectin at AEMO s nminated lcatin against a cnnectin at the applicant s nminated lcatin (refer Cnnecting Victria: Transmissin Prject Develpment Prtcl). The lcatin f the terminal statin remains the decisin f the applicant. The applicant may prceed with acquiring easements and apprvals fr cnnecting at its chsen lcatin withut waiting fr the RIT-T utcme. The RIT-T in these circumstances will nly apply t incremental csts assciated with wrks required t facilitate future expansin f the terminal statin. If AEMO specifies a design fr the terminal statin t enable future expansin which is different t that nminated by the applicant, AEMO will cnduct a RIT-T assessment t determine the net benefit f develping a terminal statin t AEMO s nminated design enabling future expansin against a cnnectin t the applicant s nminated design (nrmally a stand alne design), which may lead t a requirement fr additinal stand alne terminal statins t accmmdate frecast future generatin cnnectins in the vicinity. If AEMO has prpsed an alternative lcatin with agreement frm the applicant, AEMO s RIT-T assessment will als include determinatin f the net benefit f develping the terminal statin at AEMO s nminated lcatin against a cnnectin at the applicant s nminated lcatin. The RIT-T in these circumstances will apply t incremental csts t enable future expansin plus any incremental csts assciated with cnnectin f the generatr t the terminal statin at AEMO s nminated lcatin (e.g. lnger cnnecting lines). If, fllwing the RIT-T r cst-benefit assessment, it is determined that a terminal statin at AEMO s nminated design (and lcatin if applicable) ffers net benefits t users generally and will cntribute t the prvisin f shared transmissin services, the incremental csts assciated with the design and lcatin will be allcated t the prvisin f prescribed transmissin services. If the cmbined incremental csts assciated with the statin design and lcatin (if applicable) satisfy the RIT-T and d nt exceed the cst f the interface and terminal statin wrks then: The cmbined incremental csts will be subtracted frm the ttal cst f the interface and terminal statin wrks; The remaining csts will be used in the calculatin f charges t prvide the applicant with negtiated transmissin services. 1 Where the $5 millin threshld fr cnducting a RIT-T is nt satisfied, AEMO will cnduct and publish a cst-benefit analysis in accrdance with its Planning Criteria fr the DSN published under clause 8.11.4 f the NER. The utcme f the cst benefit analysis must be net psitive fr the additinal csts t be treated as prescribed services. V 1.0 30 May 2012 Page 8 f 12
The incremental csts d nt relate t the negtiated transmissin service prvided t the applicant and will be allcated t the prvisin f prescribed transmissin services. If the cmbined incremental csts exceed the cst f the interface and terminal statin wrks then: The incremental csts will be allcated t cver the ttal cst f the interface and terminal statin wrks; The excess incremental csts (ver and abve the ttal cst f the terminal statin and interface wrks) will be allcated t the transmissin line cnnecting the generating plant t the terminal statin if the transmissin line is prviding a shared transmissin service; If the transmissin line des nt prvide a shared transmissin service, thse excess incremental csts will be allcated t the prvisin f the expansin capability, as they were incurred in prviding that capability; The remaining csts f the transmissin line will be funded by the applicant as a negtiated transmissin service. If the incremental cst f develping the terminal statin t AEMO s nminated design and/r lcatin des nt satisfy the RIT-T, AEMO will develp the statin t the applicant s nminated design and/r lcatin, subject t meeting AEMO s technical requirements. The applicant may nminate its initial prpsed cnnectin lcatin r an alternative lcatin agreed between AEMO and the applicant, The cnnectin will be develped generally as a stand alne cnnectin. The cst f the cnnectin will be brne entirely by the applicant as a negtiated transmissin service. Where the RIT-T is nt satisfied, any additinal csts assciated with develpment at the alternative lcatin, including the cst f btaining new easements and assciated apprvals will be brne by the applicant. 7.2 Expansin Cnnectins An Expansin Cnnectin ccurs where subsequent generatin cnnectins can nly be accmmdated if there is a majr expansin f the terminal statin invlving a substantial investment. Examples f a majr expansin include: Cnversin frm a tee cnnectin t duble-switching r breaker-and-a-half switching f cnnecting transmissin lines; Cnnectin f the terminal statin t the netwrk via an additinal transmissin line. It may be apprpriate fr a share f the csts f an Expansin Cnnectin t be allcated t the prvisin f prescribed transmissin services where the expansin f an existing terminal statin is triggered by the redirectin f a cnnectin t a lcatin preferred by AEMO. This will be the case where: The ttal cst f a new cnnectin (including the cst f the expansin) exceeds the ttal cst f a new stand alne cnnectin at an alternative lcatin (nminated by the applicant) at which there is n existing terminal statin; AEMO is satisfied that the incremental csts will be incurred in relatin t a service that can be classified as a prescribed transmissin service; It is net beneficial, frm a market-wide perspective, fr the existing terminal statin t be expanded and fr the applicant t cnnect its generating plant at the existing terminal statin rather than establish a new cnnectin at a greenfields site. Any redirectin frm an applicant s nminated lcatin will ccur nly with agreement frm the applicant. Where AEMO prpses an Expansin Cnnectin, AEMO will use the RIT-T r cst-benefit test as apprpriate t assess the net benefit f expanding an existing terminal statin against cnstructing a new terminal statin fr cnnectin at an alternative lcatin nminated by the applicant. V 1.0 30 May 2012 Page 9 f 12
If an expansin f the existing terminal statin is demnstrated t ffer net benefits, AEMO will allcate any incremental csts assciated with the Expansin Cnnectin (in excess f the cst f develping a greenfields terminal statin at the applicant s nminated lcatin) t the prvisin f prescribed transmissin services. If these incremental csts d nt exceed the cst f the interface and terminal statin wrks assciated with the expansin then: The incremental csts will be subtracted frm the cst f the interface and terminal statin wrks assciated with the expansin; The remaining csts will be used in the calculatin f charges t prvide the applicant with negtiated transmissin services. If the incremental csts exceed the cst f the interface and terminal statin wrks assciated with the expansin then: The incremental csts will be allcated t cver the ttal cst f the interface and terminal statin wrks assciated with the expansin; The excess incremental csts (ver and abve the ttal cst f the terminal statin and interface wrks) will be allcated t the transmissin line cnnecting the generating plant t the terminal statin if the transmissin line is prviding a shared transmissin service; If the transmissin line des nt prvide a shared transmissin service, thse excess incremental csts will be allcated t the prvisin f the terminal statin expansin, as they were incurred in prviding that expansin; The remaining csts f the transmissin line will be funded by the applicant as a negtiated transmissin service. If the incremental cst f the Expansin Cnnectin at the lcatin nminated by AEMO des nt satisfy the RIT-T, AEMO will develp a new terminal statin t the applicant s nminated design and lcatin, subject t meeting AEMO s technical requirements. Where the cnnectin is f the applicant s nminated design and lcatin (generally a stand alne cnnectin), the cst will be brne entirely by the applicant as a negtiated transmissin service. V 1.0 30 May 2012 Page 10 f 12
8 Further Develpment This Plicy is subject t further develpment in the fllwing areas. 8.1 Lad Cnnectins This Plicy presently des nt cver cst allcatin fr lad cnnectins. AEMO is currently cnsidering hw csts will be allcated between applicants cnnecting generatin and lad at the same terminal statin. In ding s, AEMO will cnsider hw a RIT-T wuld be applied t justify any prescribed services where apprpriate and take int accunt ther applicable NER requirements. Any apprach fr lad cnnectins will be develped in cnsultatin with Victrian Distributin Netwrk Service Prviders. 8.2 Transmissin Framewrks Review Elements f this Plicy may verlap with utcmes f the AEMC s Transmissin Framewrks Review (TFR). AEMO will mnitr the utcmes f the TFR and mdify any plicies r prcedures if required fr cnsistency with any Rule changes arising frm the TFR. V 1.0 30 May 2012 Page 11 f 12
APPENDIX A: Prescribed Wrks Required fr Future Expansin f a Terminal Statin Prescribed wrks required at the time f terminal statin establishment fr future expansin wuld fall under ne r mre f the fllwing criteria: Required t ensure that the statin can be expanded in an ecnmic manner. Culd nt be carried ut at a later stage withut excessive disruptin t in-service plant. May be carried ut at a significantly lwer cst at the initial develpment stage, as cmpared with later stages. This may include wrks t minimise required rewrk as the statin is expanded. The extent and nature f these wrks will vary cnsiderably between prjects accrding t site cnditins. They may include the fllwing: Land Acquisitin Additinal land (r ptin t acquire additinal land) t accmmdate the planned ultimate switching arrangement Fencing Perimeter fencing fr land acquired t accmmdate the planned ultimate statin develpment. Additinal security fencing fr any additinal develped land (i.e. extra land accmmdating larger buildings r additinal switchyard bench area develped at the initial stage) Earthwrks, rads, surfacing, drainage & cable trenches and ther site preparatin wrks May include additinal rck drilling r blasting and any ther wrks adjacent t plant t be in service at the initial stage f develpment. Earth grid May include earth grid adjacent t bays t be in service at the initial stage f develpment. Light, pwer and security system Additinal wrks as necessary t prvide security f the additinal area. Landscaping Any additinal landscaping required t meet planning permit cnditins at the initial stage f develpment, taking int accunt any additinal land acquired fr the ultimate arrangement. May include arrangements t minimise any future destructin r rewrk f landscaped areas. Buildings May include cnstructin f larger r readily expandable buildings. Cnstructin f separate additinal buildings t meet future requirements is nt envisaged. AC and DC supply system May include installatin f higher capacity (abve initial requirements) r readily expandable systems. Installatin f separate additinal ac r dc supply systems t meet future requirements is nt envisaged. V 1.0 30 May 2012 Page 12 f 12