Economic Regulation of Energy Networks

Electricity Networks

A framework for the economic regulation of electricity transmission and distribution networks operating in the National Electricity Market is provided by the National Electricity Law and the National Electricity Rules. The Law and the Rules work together to ensure that regulatory outcomes achieve the long-term interests of consumers.

The Australian Energy Regulator (AER) is an independent regulator that enforces the requirements of the Law and the Rules in setting the appropriate prices that electricity network businesses can recover from the end-users. Electricity network businesses periodically make regulatory proposals which include proposed network operating and investment plans. These are assessed by the AER by reference to the requirements of the regulatory framework. The assessment is undertaken through a public consultation process and typically reoccurs every five years.

Under the Rules the AER is required to apply a series of guidelines (Better Regulation Guidelines) in assessing the regulatory proposals made by electricity networks. These guidelines have been developed by the AER in an extensive stakeholder consultation process and include:

  • Expenditure forecast assessment guideline;
  • Rate of return guidelines;
  • Expenditure incentive guidelines;
  • Shared asset guidelines; and
  • Confidentiality guidelines.

In additional to the above guidelines, the AER developed a Service provider consumer engagement guideline in order to provide guidance on its expectations surrounding consumer participation both in the price-setting process and throughout the regulatory period.

As a result of assessing electricity networks’ revenue forecasts, the AER determines either a cap on the maximum revenues that the regulated firm can earn or a cap on the allowed price increases from year to year.

Gas Networks

The Australian Energy Regulator (AER) is responsible for economic regulation of gas networks and pipelines in all jurisdictions accept Western Australia. A framework for the economic regulation of gas distribution networks and transmission pipelines is provided by the National Gas Law and the National Gas Rules.

The owners and operators of all major urban distribution networks have to periodically submit an access arrangement proposal which specifies networks’ proposed network operating and investment plans for the forthcoming access arrangement period (typically five years).  The AER approves tariffs that gas networks can charge for network services.

Jurisdictional regulation

Economic regulation is a function of the Economic Regulation Authority (http://www.erawa.com.au) in Western Australia. The ERA applies the National Gas Law and Rules in Western Australia, and a jurisdiction-specific Electricity Network Access Code. The Utilities Commission (http://www.utilicom.nt.gov.au) in the Northern Territory.

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