This past month, the Australian Energy Market Commission has kicked off what is set to be one of the most significant reviews of the decade, spanning how services are classified and how regulated revenue, incentives and risk are set to protect and promote consumer interests.  

The Electricity Network Regulation Review is split up into two packages. The first focuses on classification of different services provided by network service providers (NSPs) and the regulatory tools that support this, such as ring fencing, cost allocation, connections processes and shared asset arrangements.  

Package Two is expected to turn to a bigger question: how the framework for NSP revenue, incentives and risk can best be set to promote consumer interests, including how risks are shared between customers and NSPs as the energy transition accelerates.  

Our regulatory framework is designed to protect consumers, provide investment certainty and, in today’s context, help deliver the energy transition. Through package one, our vision of a fit for purpose economic regulatory framework is one that is sufficiently flexible to deploy the technologies and infrastructure underpinning the energy transition at pace and at the lowest sustainable cost. 

Given the required pace of the energy transition, waiting for competitive markets to develop independently risks holding back the transition rather than supporting it, since they may develop too slowly, with too little coordination to maximise customer benefits, or not at all. In some cases, competitive supply has not emerged at the scale or speed required to support efficient outcomes for consumers.  

ENA is strongly supportive of changes to service classification framework to ensure that services are provided in the manner that maximises long-term customer benefits. This includes targeted, proportionate NSP participation in markets that may otherwise be considered contestable, where this is the most efficient means of delivering customer outcomes and does not foreclose on future competition.  

The AEMC will soon publish its first paper for Package Two, where it will explore how elements of the regulatory framework that shape NSP revenue determinations, incentives and risk allocation can be better aligned with consumer interests in a rapidly changing environment.  

A key issue is demand uncertainty. Unprecedented uncertainty on the pace of uptake consumer energy resources (CER), such as solar, home batteries and electric vehicles, makes it difficult to predict how a network’s electricity demand profile may change.  

In this context, ENA considers that incremental adjustments to the existing regulatory framework are needed to ensure it remains fit for purpose, rather than fundamental reform that could introduce additional uncertainty at a time of major investment programs. ENA’s focus is on better managing emerging uncertainty and ensuring the framework continues to provide the right incentives for NSPs to make efficient decisions in the long-term interests of consumers in a rapidly changing energy system. 

ENA looks forward to engaging with the AEMC on how the framework can efficiently balance emerging risks while maintaining its focus on long-term customer outcomes.