Incentive schemes are the quiet half of network regulation. The revenue determination decides how much a transmission business may recover; the schemes decide what it is rewarded or penalised for along the way. The Service Target Performance Incentive Scheme, STPIS, is the service-quality one, and the Australian Energy Regulator has just moved to a new version of it.

Version 6 of the STPIS was published on 17 April 2025, and the regulator proposes to apply it to Transgrid for the five years from 1 July 2028. Most of what changed is housekeeping. One item is not.

What the Market Impact Component did

In the version being replaced, a transmission business was measured on the market consequences of its own outages. Take a line out at the wrong moment and you can force generation to be dispatched out of merit order, which raises the wholesale price everybody eventually pays. The MIC put a number on that and attached money to it.

In version 6, in the regulator’s own words, the Market Impact Component (MIC) (which applies in version 5 of the STPIS) has been suspended. Not replaced. Suspended. The AER says it is undertaking a process to explore alternatives to the MIC through a working group comprising industry stakeholders and market bodies.

The timing is the story

The working group will report its findings to the AER for our consideration by late 2026. Consideration is not adoption, and any replacement then has to be made, applied and given effect through a determination that does not start until 1 July 2028.

Meanwhile the Hunter is in the middle of the busiest connection period in its grid history. That is not our framing. A consumer advocate put it to the regulator directly.

The objection, and the regulator’s answer

The Justice and Equity Centre told the AER that suspending the MIC without other measures in place could put unacceptable pressure on wholesale prices without clear accountability for those outcomes. It asked the regulator to require Transgrid to report on market impacts, monitor them and act promptly if material risks appear, and it said why now: especially given the upcoming wave of new connection points such as renewable energy zones, batteries and interconnectors expected in the 2028 to 2033 period.

The regulator’s response is recorded in the same paper. The AER is considering reporting requirements on TNSPs as part of the working group process currently on foot to find a replacement for the MIC. Considering, as part of the process that reports by late 2026.

The rest of version 6, for completeness

  • The Service Component was amended to remove rounding in setting targets for the loss of supply frequency parameter.
  • The Network Capability Component was amended to remove the Network Capability Incentive Parameter Action Plan and link the component to a business’s Transmission Annual Planning Report instead, and to better align incentive payments with revenue reductions.

A second submission, from Deakin University’s Centre for Smart Power and Energy Research, supported applying version 6 but argued reliability incentives should increasingly recognise inverter-based operability constraints rather than only outage-based measures. That is a technical point with the same shape as the first: the measures were built for a system that is changing under them.

Our view, labelled as such

Suspending a measure you have decided is not working well is defensible, and the AER is not pretending otherwise. What is uncomfortable is the gap. For a period covering the heaviest connection activity this network has seen, there is no live financial incentive on a transmission business to weigh the wholesale-price consequences of when it takes plant out, and the replacement is a working group with a reporting date rather than a rule.

The reporting requirements the JEC asked for are the obvious interim, and the regulator says it is considering them. Whether it adopts them is checkable, and late 2026 is when to check.

How we sourced this

Both quotations of the regulator and the account of version 6 come from the AER’s Framework and Approach paper for the Transgrid 2028 to 2033 transmission determination, July 2026, which we read in full. The Justice and Equity Centre’s position is quoted as the AER records it in that paper and is consistent with the Centre’s own submission of 8 May 2026, which we have also read.

What we have not done. We have not read version 6 of the STPIS itself or the AER’s April 2025 explanatory statement for the amendments, so we describe the MIC’s suspension as the F&A describes it rather than from the scheme document. We do not know who sits on the working group, what alternatives it is considering, or whether anything has been published since July. We have not asked the AER, Transgrid or the Justice and Equity Centre for comment. The suspension applies to the scheme generally and is not a decision about Transgrid; we have used the Transgrid paper because that is where we found it set out.

Sources

  1. Australian Energy Regulator, Framework and Approach, Transgrid transmission determination 2028-33 (PDF, July 2026, read 5 August 2026): that version 6 was published 17 April 2025, the suspension of the Market Impact Component, the working group and its late-2026 reporting date, the Service Component and Network Capability Component amendments, and the AER’s response to stakeholder feedback.
  2. Justice and Equity Centre, Submission on the AER preliminary position paper (PDF, 8 May 2026, read 5 August 2026): its concern about suspending the market impact component and what it asked the regulator to require instead.

Work in transmission, or read this differently? Tell us and we will check it against the sources and log the outcome here.