We work to make all Australian energy consumers better off, both now and in the future. We regulate energy networks, retailers and wholesale markets. Energy networks provide the links between wholesale markets and retailers and ultimately, energy consumers.
We set network prices so that energy consumers pay no more than necessary for the safe and reliable delivery of electricity and gas services.
We want to see successful businesses thrive and get appropriate rewards when they meet the needs of consumers. This is best delivered through competition, with regulation advancing the long-term interests of consumers where necessary. The high cost of energy networks can make it efficient to have a single supplier of network services in a particular geographic area, leading to a natural monopoly industry structure. We regulate the monopoly energy networks in all jurisdictions except Western Australia. We set the amount of revenue that network businesses can recover from customers for using these networks.
- We look for opportunities to open up markets to competition—we don’t assume all network services must stay as regulated monopolies.
- We drive the network businesses, through our ‘reset’ processes and ongoing oversight, to deliver good long-term outcomes for consumers in terms of price, quality, safety, reliability and security of supply.
- We encourage and enable innovation by network businesses and aim to show the same spirit of innovation in our own work.
- We use our insight and expertise to improve the ways networks are regulated, by both developing our own approaches and proposing changes to rules and policies.
We regulate over 750 000 km of electricity network and 75 000 km of gas pipeline.
The National Electricity Law and Rules set out the regulatory framework for electricity networks. Regulated 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 we apply in undertaking this role for distribution and transmission networks respectively. The frameworks require us 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, we forecast how much revenue a business needs 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.
The National Gas Law and Rules set out the regulatory framework for gas pipelines. Economic regulation provisions apply only to ‘covered’ pipelines. Various tiers of regulation apply, based on competition and significance criteria.
Full regulation requires a pipeline owner to periodically submit an access arrangement to the AER 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. We assess the revenues needed by the pipeline business to cover its efficient costs and provide a commercial return on capital, then derive reference tariffs for the pipeline services.
Under light regulation, the pipeline owner determines its own tariffs. The provider must 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.
Effective consumer engagement is essential to build the Australian community's confidence in the energy market, its regulation and the outcomes it delivers. It is important for the AER to gain consumer perspectives and observations to help us make regulatory decisions which achieve the National Electricity or Gas Objectives. Consumer perspectives are critical if the regulatory regime is to focus on promoting consumers' long term interests.
We continue to explore ways of making our engagement with consumers more constructive. In particular, we are looking to engage with consumers and network businesses to identify key issues earlier in the regulatory process, and work collaboratively to resolve them.
We are moving to create an environment where network businesses, consumers and the AER can openly discuss contentious issues. This approach offers opportunities to reduce the regulatory costs borne by businesses and consumers alike. The regulatory framework can be technical. We endeavour to simplify our decisions as much as possible and help stakeholder engagement in various ways. For example, our Indexation fact sheet explains why the regulatory asset base is indexed for inflation.
The 2017 AER Stakeholder Engagement Framework commits us to improving the quality of our engagement activities. It establishes a principles based approach to our engagement activities, and clearly documents the steps we will take to engage with those affected by our work.
Our network revenue determination engagement protocol provides stakeholders with clarity about our reset processes and their involvement. The engagement protocol creates a predictable experience for all stakeholders involved in our network revenue determination processes. It explains our 'principles of engagement', and how we apply those principles when we engage with all stakeholders in regulatory processes. Further, it outlines the consultation requirements under the National Electricity and Gas rules—with examples of how we will fulfill them.
As part of our engagement with consumers, we endeavour to provide timely access to networks information, through publication of information provided to us by the businesses, economic benchmarking reports and other performance reports.