What is network tariff reform?
Distributors charge network tariffs to retailers who then pass them on to their customers. These tariffs help distributors recover revenue to build, operate and maintain the poles and wires that are used to transport electricity. We regulate these tariffs annually so that consumers pay no more than necessary for safe and reliable electricity services.
The National Electricity Rules require distributors to gradually make their tariffs more accurately reflect the costs of serving their customers (i.e. cost reflective). For example, transitioning single rate usage tariffs to reflect different peak and off-peak times (time-of-use tariff).
We believe that tariff reform will allow distributed energy resources (DER) such as solar PV, batteries and electric vehicles to be integrated onto the grid as efficiently as possible.
Network tariff reform encourages more efficient use of networks which helps reduce:
- the need for additional investment; and/or
- the amount of network infrastructure that needs to be maintained.
As customers ultimately pay for these upgrades, tariff reform that encourages a more efficient use of the network will lead to lower network costs for all customers.
We note that network tariffs are targeted at retailers who package them with other costs, such as the cost of wholesale energy, in their service offerings to electricity customers. As such, the retail electricity tariff may not directly reflect the network tariff.
On 12 August 2021, the AEMC published its Access, pricing and incentive arrangements for distributed energy resources final determination. The determination changes the energy rules with the aim of getting more small-scale solar into the grid, while supporting growth of batteries and electric vehicles. This included removing the prohibition on export tariffs.
As a result of this change, the AER is required to consult on and develop export tariff guidelines that provide information and guidance to distributors and other stakeholders about the process for development and approval of export tariffs.
For more information about the Guidelines please see the Export tariff guidelines page.
How is network tariff reform progressed?
Tariff structure statements
Each regulatory period, distributors are required to submit a tariff structure statement (TSS) to the AER for approval. The TSS sets out the distributor’s proposed strategies to progress network tariff reform.
We assess distributors’ TSS proposals to account for a number of factors, including:
- network circumstances such as location or number of energy customers
- the expected impact on customers
- customer understanding.
The pace of progress is informed by a variety of factors including: what customers want, what impacts they will face, and the roll out of smart meters, which make it possible to record when energy is used at different times of the day. This means tariff reform strategies can evolve as stakeholder understanding develops and new technologies and service models emerge. To help distributors, we have provided guidance on how network tariff reform can be implemented.
We expect distributors to progress tariff reform by undertaking tariff trials to test more complex and innovative tariffs which could also enable new services. We have provided guidance for distributors on how tariff trials can be approached.
Every year, we assess the distributors’ annual pricing proposals to ensure the distributors’ actions match their approved plans. The tariff structures in an annual pricing proposal must match the tariff structures we approved in the distributor’s TSS at the start of each five year regulatory control period.
How do we measure progress in network tariff reform?
The AER considers network tariff reform to be a key priority and this is reflected within our Strategic Plan. One of the ways we measure progress in this area is by tracking how many residential customers have their retailer exposed to a cost reflective network tariff.
The chart below shows the progress of residential customer assignment to cost reflective tariffs, per distributor, using data collected by the AER through its compulsive information gathering powers (Regulatory Information Notices or RINs).
In aggregate, at 30 June 2021 the proportion of residential customers on a cost reflective network tariff across the NEM was 16.6%.
Note that had bulk reassignment of small customers in Qld and SA occurred as originally scheduled on 1 July 2020 (it was delayed due to the impact of the COVID pandemic), the proportion of residential customers assigned to cost reflective tariffs on 30 June 2021 would have been 22.7%. Bulk reassignment in Qld and SA subsequently occurred on 1 July 2021 for Qld and over the 6 months between July and December 2021 for SA.
If you would like further information on network tariff reform and related work please email AERInquiry@aer.gov.au