The Australian Energy Regulator has finalised a range of regulatory reforms to protect consumers from paying more than necessary for the safe delivery of reliable electricity and gas network services.
The AER’s Better Regulation program involved extensive consultation with businesses and the community in reforming the approach to setting energy network prices under the new network regulation rules that were finalised in late 2012.
“These reforms mean in the future consumers will pay no more than necessary for a safe and reliable supply,” AER Chairman Andrew Reeves said.
“The new rules and our guidelines give us stronger powers to scrutinise network businesses’ expenditure proposals. We will use benchmarking and other techniques to assess the need for and efficiency of spending proposals,” Mr Reeves said.
Reforms have also been introduced to encourage network businesses to seek out more efficient ways of providing services. This includes new measures that will allow customers to share in the benefits of the networks spending less than was forecast.
“We will review any spending that is greater than was forecast. If we determine that investment was not necessary, we will not approve any return on the investment,” Mr Reeves said.
We expect network businesses to engage with their consumers before submitting their spending proposals. This is so the needs and interests of consumers are considered in planning future spending on energy networks.
Consumers will first see the effects of the AER’s new approach in New South Wales and the Australian Capital Territory - price reviews for these network businesses commence in early 2014 and will be finalised in 2015. Price reviews will roll on through the remaining states and be done for all energy networks under the new approach by 2018.
Mr Reeves said that the AER will finalise its new approach to setting the return that network businesses are allowed to earn on their investments in mid-December.
The AER regulates energy markets and networks. It is an independent body under the Competition and Consumer Act 2010, and its functions are set out in national energy market legislation and rules.
The Australian Energy Market Commission (AEMC) finalised changes to the network regulation rules in late 2012. Shortly after, the AER began its Better Regulation program to consult on how it would conduct energy network regulation under the new rules. The AER’s new approach is set out in a series of guidelines that form an integrated package of network regulation reforms.
In total the Better Regulation program included seven new guidelines and the Consumer Challenge Panel (appointed 1 July 2013) that will advise the AER on consumer interests in revenue determination processes. The new guidelines are:
- Regulatory Investment Test for Distribution (published 23 August 2013) establishes consistent, clear and efficient planning processes for distribution network investments in the national electricity market.
- Consumer engagement guideline (published 6 November 2013) sets out a framework for energy network businesses to better engage with consumers.
- Confidentiality guideline (published 19 November 2013) sets out how energy network businesses must make confidentiality claims over information they submit to us. Expenditure incentives guideline (published 29 November 2013) includes measures to give electricity network businesses incentives to spend efficiently and share the benefits of efficiencies with consumers.
- Expenditure forecast assessment guideline (published 29 November 2013) describes the process, techniques and associated data requirements for our approach to setting efficient expenditure allowances for network businesses.
- Shared assets guideline (published 29 November 2013) outlines how electricity consumers will share in the benefits when network businesses use the electricity assets consumers pay for to provide other services.
- Rate of return guideline (to be published December 2013) sets out improvements to the way we determine the return energy network businesses can earn on their investments.
All our guidelines are accompanied by consumer focused factsheets which provide background on the role of each guideline and outline our key positions. There is further information on our the Better Regulation webpage.