The electricity supply chain links generators with consumers. Electricity is produced by the competitive generation sector. It is delivered across transmission and distribution networks that are typically operated by monopoly businesses. Retailers compete to offer energy services to consumers.
Generators in eastern and southern Australia compete in the National Electricity Market to sell electricity to retailers and large consumers. The operation of this market is governed by rules to facilitate:
the operation of an efficient combination of generators at any given time
the calculation of efficient electricity prices in a transparent manner
efficient investment in generation
efficient use of energy by consumers
safe and secure operating limits for electricity flows across transmission networks to minimise the risk of a major supply interruption
Transmission and distribution networks
The significant cost of extensive networks of electricity poles and wires means that network services in a particular region can be most efficiently provided by a single (monopoly) supplier.
The rules provide the framework within which the regulator sets the maximum prices that electricity network businesses can charge for the services they provide or the maximum revenue they can earn. Regulation helps to manage the potential risks of monopoly pricing so that consumers do not pay any more than necessary for the reliable supply of electricity and gas.
Revenues or prices are usually set every five years. The five-year regulatory cycle was established to help encourage a stable investment environment.
The retail sector of the supply chain is generally competitive, allowing consumers to choose to purchase their electricity from a growing group of energy retailers.
Retailers buy wholesale electricity through the National Electricity Market. They package it with transportation charges for sale to consumers.
The arrangements between retailers and their customers are regulated under general consumer law and the National Energy Customer Framework (NECF), although the National Electricity Rules include matters such as registration requirements for retail companies and arrangements for customer connections and metering.