The Australian Energy Regulator (AER) has published for consultation a range of regulatory reforms to protect consumers from paying more than necessary for the safe delivery of reliable electricity and gas network services.
These reforms are part of the AER’s Better Regulation program, which was initiated in December 2012.
“Through the Better Regulation program the AER is improving how we regulate energy network businesses. Consumers should only pay network prices that are based on the efficient costs of providing reliable energy services,” AER Chairman Andrew Reeves said.
“These proposed reforms would prevent excessive spending and give network businesses sufficient, but not excessive, returns on their investments. Further, there should be greater communication between network businesses and consumers so that investment is focussed on what is valued by consumers,” Mr Reeves said.
“Improved penalties and rewards mean consumers will not have to pay for excessive investment. The AER will use benchmarking to compare the relative efficiency of network businesses. Inefficient networks will face cuts to their proposed expenditure,” Mr Reeves said.
The previous regulatory framework locked the AER into a method of calculating the returns that network businesses could earn and exposed consumers to significant price shocks. The AER’s new process will use more varied information, enabling it to calculate returns that are based on efficient financing practices.
“The reforms include a new framework to help network businesses engage with consumers so that their spending proposals can be based on genuine consumer priorities. It is important for consumer engagement to be integrated throughout network businesses,” Mr Reeves said.
The AER is inviting feedback on these proposals. There is further information on the Better Regulation program web page.
Background
The Australian Energy Regulator is an independent body responsible for the economic regulation of electricity and gas transmission and distribution networks in the national electricity market. Up to 50 per cent of a consumer’s energy bill can be attributed to the cost of delivering electricity through the transmission and distribution networks.
The Better Regulation program forms an integrated package of changes to the way the AER approaches network regulation under the new regulatory framework and includes:
- Consultation on six draft guidelines. The AER:
- held a public forum on 18 December 2012 to discuss our work program and the consultation process that over 100 stakeholders attended
- released issues papers on each guideline between December 2012 and March 2013 to consult on our preliminary views
- held over 60 meetings with stakeholders since December 2012, ranging from large forums, to targeted workshops, teleconferences, and bilateral meetings
- established a consumer reference group to help consumers engage across the broad spectrum of issues we are considering in developing the guidelines, meeting with the group (or sub-groups) on almost 20 occasions since February
- published six draft guidelines for consultation between July and August
- will hold further meetings with stakeholders and the consumer reference group between August and November
- will publish final guidelines at the end of 2013.
- A Consumer Challenge Panel (appointed on 1 July 2013) that will advise the AER on consumer interests in revenue determination processes.
- The final Regulatory Investment Test for Distribution (published on 23 August 2013) that requires network businesses to evaluate alternatives to network upgrades, including demand management, before investment.
- Improvements to our internal technical expertise and systems, and our engagement and communication with all our stakeholders.
All of the AER’s guidelines are accompanied by consumer focussed factsheets which provide background on the role of each guideline and outline our key positions. In addition, the document Better Regulation reform package update has an overview of the program, the consultation, and the structure of the package.