Balance of power - Regulator urges rule change

The AER considers that energy network rules need to be changed to protect consumers from paying more than they should for services.

At a seminar hosted by the Energy Users Association of Australia, AER chairman Andrew Reeves reported on the key issues from its review of the National Electricity Rules that determine how energy network prices are set.

"Network costs are a major contributor to increases in electricity prices," Mr Reeves said.

"While there is a fundamental need to invest in the networks to meet rising demand, replace ageing assets and maintain reliability, the AER considers that the rules need to be improved to ensure that consumers do not pay more than is necessary."

"The current rules limit the ability of the regulator to determine efficient costs, putting upward pressure on energy prices for consumers."

"It is important that the regulator has the ability to determine allowances that give the businesses a commercial return to invest to meet needs. However, it is also essential that consumers are not required to pay more than necessary for the safe and reliable supply of electricity. The rules must allow the regulator to set allowances based on best practice industry benchmarks."

The AER is currently drafting a rule change proposal that will be submitted to the Australian Energy Market Commission (AEMC) later this year.

The rule change proposal will focus on how the regulator can ensure that the allowances for the businesses are no more than necessary. Further, the AER is examining ways to ensure that businesses are not rewarded for unnecessary and excessive overspends.

It is also necessary to reform the process for deciding the business’s allowable returns. The AER will propose replacing the various processes currently used across electricity and gas transmission and distribution networks with a single consistent framework. Changes are needed to ensure that returns are consistent with current commercial practices and financing costs.

The AER is responsible for the economic regulation of the electricity transmission and distribution networks in the national electricity market. In carrying out these functions, the AER must comply with the requirements of the National Electricity Rules (the Rules).

Among other things, the Rules prescribe:

  • the process that the AER must follow when making a determination, and
  • the matters that the AER must consider when making a determination.

The AEMC is responsible for making and amending the Rules. Accordingly, the AEMC will decide whether to adopt the changes proposed by the AER in accordance with the process set out in the Rules.

Issued date: 
20 June 2011
AER reference: 
NR 009/11
Andrew Reeves, Acting AER Chairman 03 9290 1419 0419 397 956
Brent Rebecca, Media 02 6213 1317 0408 995 408