On 23 March, the Australian Energy Regulator (AER), Energy Consumers Australia and Energy Networks Australia announced the ‘New Reg’ initiative. This is a new consumer-centric approach to electricity network regulation which will soon be tested via a trial with Victorian network business AusNet Services. We discuss this initiative below.
By Dr Drew Donnelly, Compliance Quarter.
Consumer participation in network regulation – Background
As electricity network business generally operate as monopolies, they are subject to a rigorous regulatory framework aimed at getting the best outcomes for Australian consumers and investors. An important part of this framework is the submission of regulatory proposals to AER. These must be submitted every five years and set out proposed capital and operating plans and the funding needed to deliver them. The AER, after consultation, considers the regulatory proposal and proposed tariffs and then makes a determination setting out the revenue and price ceilings for those businesses.
New Reg aims to increase the efficiency and effectiveness of network regulation through introducing more meaningful consumer input into the process. Throughout 2018 AER will carry out consultation on the approach in conjunction with a ‘live’ trial of the process.
The focal point of this initiative is a new ‘Consumer Forum’ that will be created containing a cross-section of AusNet Services’ residential, small business, commercial and industrial customers. AusNet Services will attempt to reach an agreement on its revenue proposal with the Forum before it is submitted to the AER.
The trial and consultation on the approach will determine what effect this level of consumer input has on network decision-making. It may also result in a shortened AER determination process for network businesses who take part. This is one clear incentive to network business participation in the new approach. Depending on the outcome, changes could be made to the National Electricity Rules to further shorten the process.
This initiative must be read in conjunction with a range of initiatives that have been introduced to improve network investment and the revenue determination process. Other measures have included:
- A general prohibition on network businesses investing in assets located on the customer’s side of a connection point to the network (‘behind the meter’) and earning a return on them;
- A review of regulatory investment tests. These are cost-benefit analysis frameworks that network business must perform and consult on before making major investments in their network (for both measures see https://www.compliancequarter.com.au/service-classification-asset-exemption-revenue-proposals-rit-applications-aer-seeks-feedback/).
- The abolition of ‘limited merits review’. This removed the ability of network businesses to have a perceived adverse revenue determination reviewed by the Australian Competition Tribunal (see https://www.compliancequarter.com.au/merits-review/).
The overall goal of all these measures is to make sure the network tariff component of consumer electricity bills is reasonable while still allowing crucial investment in the network by network businesses.
This trial will make it clearer whether a consumer ‘co-design’ process will be helpful in achieving those aims.
For more information, see the Approach and Directions Papers at https://www.aer.gov.au/networks-pipelines/guidelines-schemes-models-reviews/regulatory-innovation.
To get in touch with the team at Compliance Quarter, click here.