Background
On 18 December 2025, the Australian Energy Market Commission (AEMC) announced it will undertake a review to examine the future of electricity network regulation in the National Electricity Market.
On 25 June 2026, the AEMC formally commenced the review into electricity network regulation under section 45 of the National Electricity Law.
Under the final terms of reference, the purpose of the review is to ensure that the economic regulatory framework governing electricity transmission and distribution network service providers is fit for purpose going forward.
Structure of the review
The review will include two packages of work:
- Package 1 will examine which services we need network service providers to provide in the future. It commenced with a consultation paper published on 25 June 2026. That consultation paper also initiated consideration of related rule change proposals from Energy Networks Australia and Nexa Advisory.
- Package 2 will examine how the regulatory framework seeks to promote consumers’ interests in the provision of regulated services by network service providers, including whether regulatory processes are efficient and support positive consumer outcomes, how the framework can best support efficient service delivery and whether it provides for appropriate risk allocation and compensation. The package 2 consultation paper was published on 13 August 2026.
We are engaging closely with the AEMC’s review and will publish all AER submissions to the review on this page.
Our submission to the Package 1 consultation paper
On 25 June 2026, the AEMC published a consultation paper for package 1 of the Electricity network regulation review. The consultation paper focused on the service classification and ring-fencing framework. It also initiated consultation on two related rule change proposals from Energy Networks Australia and Nexa Advisory.
The AER made a submission in response to the consultation paper on 23 July 2026 which supported the AEMC’s approach to the review. We suggested some reform design principles to guide the review and encouraged the AEMC to investigate areas where we have observed emerging or potential challenges to the current framework.
In particular, our submission encouraged the AEMC to consider challenges relating to third-party access to network-controlled inputs, enabling greater flexibility in service classification, and managing increasingly complex coordination and shared asset risks.
In relation to the rule change proposals, our submission emphasised that efficient outcomes (not market failure) should be the test for regulatory decisions and that the most efficient solution is context-specific. Therefore, the framework should enable flexible decision-making.
Rather than focusing narrowly on the circumstances in which regulated network businesses should or shouldn’t be able to deliver specific services, we encouraged the AEMC to consider more fundamental challenges about how to regulate services that perform coordination functions across both regulated and contestable services.
Our submission also clarified the interaction between the AEMC review and our review of the AER’s Ring-fencing guideline (electricity distribution) and Shared asset guideline (which applies to both distribution and transmission networks), which complements the AEMC review.
Our submission to the Package 2 consultation paper
On 13 August 2026, the AEMC published a consultation paper for package 2 of the Electricity network regulation review. The consultation paper sought feedback on the revenue determination process, the incentives that network businesses face, and how risks are allocated and compensated between network businesses and consumers. The AER made a submission to the consultation paper on 24 September 2026.
Our submission reiterated that the existing framework, based on ex ante incentive regulation, remains a strong foundation to deliver efficient electricity network services. Our submission also highlighted the work the AER is already doing in adapting existing regulatory tools and approaches in line with our 2026–30 strategic plan objectives, including to drive more efficient utilisation of electricity distribution networks.
We suggested the AEMC’s review emphasise issues not already being progressed through established reviews or other regulatory work programs, as well as where the review is best placed to consider framework reforms to promote efficiency through the energy transition.
Noting the challenges the future holds, our submission suggested that package 2 should systematically consider foundational framework questions. For example:
- How should risk be allocated between networks and consumers to respond to the needs of the energy transition without weakening efficiency incentives?
- How should the framework govern access to, allocation and efficient use of network capacity?
- What should be achieved through obligations rather than financial incentives?
We recommended the AEMC examine these foundational issues because they have implications across the framework and because changes made in isolation can have unintended consequences.
Our submission encouraged the AEMC to use package 2 to consider these interactions across the framework, while ensuring regulatory tools match the problem being addressed, avoiding unnecessary changes to mechanisms that continue to work well, and remaining open to more foundational change where the regulatory problem has changed.
This would provide a clearer basis for determining what should be retained, what can be simplified or refined, and where the changing role of networks requires a different regulatory approach.
The submission includes an attachment that provides detailed feedback on the priority issues and areas of the framework that may need to evolve, including:
- applying ex ante incentive regulation through the energy transition, which should recognise where the foundations of the current framework remain strong and where changing conditions may require a different regulatory response
- the importance of allocating risk to who can manage it best, and more specifically how some of the existing uncertainty mechanisms may need to be refined to preserve the intended allocation of risk and balance of incentives
- the need to ensure wider system benefits inform expenditure decisions, noting Distribution System Operator (DSO) functions may require a different mix of obligations and incentives
- the revenue determination process, which would benefit from a more flexible, principles-based and agile framework that places greater emphasis on initial proposals and builds on the sector’s progress to date in integrating consumer and stakeholder views.