Our role in networks
Our role in electricity networks and gas pipelines
Energy networks require large amounts of infrastructure and incur declining average costs as output increases. This means network services in a particular geographic area can be most efficiently served by a single supplier, leading to a natural monopoly industry structure.
The networks are regulated to manage the risk of monopoly pricing. Monopoly pricing is where a monopoly business can charge higher prices or provide poorer services compared with the situation where its customers could choose between competitors offering the same services.
The AER is responsible for the economic regulation of most electricity networks and gas pipelines in Australia. The AER is committed to applying consistent and transparent regulatory approaches to encourage the businesses to undertake efficient investment and provide reliable services to consumers.
Electricity networks
The AER regulates all electricity networks in the National Electricity Market, covering Queensland, New South Wales, the ACT, Victoria, South Australia and Tasmania. The National Electricity Law and Rules set out the regulatory framework. The Economic Regulation Authority regulates electricity networks in Western Australia and the Utilities Commission regulates electricity networks in the Northern Territory.
Regulated electricity network businesses must periodically apply to the AER to assess their revenue requirements (typically, every five years). Chapters 6 and 6A of the National Electricity Rules lay out the framework that the AER must apply in undertaking this role for distribution and transmission networks respectively. The frameworks are broadly similar, and require the AER to set a ceiling on the revenues or prices that a network can earn or charge during a regulatory period.
In determining the revenues or prices that a network business can charge, the AER must forecast the revenue requirement of a business to cover its efficient costs (including operating and maintenance expenditure, capital expenditure, asset depreciation costs and taxation liabilities) and provide a commercial return on capital.
Gas pipelines
The AER is responsible for the economic regulation of pipelines in jurisdictions other than Western Australia; the Economic Regulation Authority is the regulator in Western Australia.
The National Gas Law and Rules set out the regulatory framework.
Economic regulation provisions apply only to ‘covered’ pipelines. Various tiers of regulation apply, based on competition and significance criteria.
Full regulation requires a pipeline provider to periodically submit an access arrangement to the regulator for approval. An access arrangement sets out the terms and conditions under which third parties can use a pipeline. It must specify at least one reference service likely to be sought by a significant part of the market, and a reference tariff for that service. The regulator assesses the revenues needed to cover efficient costs and provide a commercial return on capital, then derives reference tariffs for the pipeline.
Under light regulation, the pipeline provider determines its own tariffs. The provider must then publish relevant access prices and other terms and conditions on its website. In the event of a dispute, a party seeking access to the pipeline may ask the AER to arbitrate.
Some pipelines are ‘uncovered’, meaning that they are not subject to economic regulation.
The regulatory framework anticipates the potential for market conditions to evolve, and includes a mechanism for reviewing whether a particular pipeline needs economic regulation, and the extent of that regulation.
Information framework
As the regulator of monopoly network and pipeline businesses, the AER requires information from the businesses about their revenues, prices, expenditures, operations and service delivery. The AER collects, analyses and reports on information provided by regulated businesses about their past, present and future performance. The AER’s network information framework describes the information collection, analysis and reporting framework that will support our regulatory functions for electricity and gas transmission and distribution businesses.
