On 27 September 2013, the Australian Energy Market Commission (AEMC) published the final advice on a recommended method for setting regulated retail prices. The AEMC was requested to provide this advice by the Standing Council on Energy and Resources (SCER).

The approach to retail price regulation outlined in this advice is principles based, to allow regulators to take their particular circumstances into account when applying this method.

This final advice:

• articulates an objective for retail price regulation that can accommodate the different retail market characteristics across the jurisdictions; and
• makes a number of recommendations relating to how the different cost components of the regulated retail price should be set.

The Commission’s recommended method builds on a number of the current approaches taken by jurisdictional regulators. The impact on the level of regulated retail prices would depend on how regulators implemented the method.

By articulating a stable and clear objective for retail price regulation, the Commission aims to assist regulators in making subsequent decisions about how retail prices should be regulated. Where a regulated retail price is maintained, the Commission considers that a stable regulatory framework and method is important for the effective operation of the competitive wholesale and retail sectors.

Background

On 9 May 2013, the AEMC received a request from SCER to provide advice on a recommended method for setting regulated retail prices for small customers.

In providing this advice, the AEMC must consider the methods for estimating each cost component within the regulated retail electricity price, including:

• wholesale energy costs;
• network charges, in relation to how they are passed through to customers;
• retail costs and margins; and
• environmental and jurisdictional scheme costs.

The AEMC will also give consideration to the appropriate form and duration of retail price determinations.

On 23 May 2013, the AEMC published the terms of reference for its 2013 Retail Electricity Price Trends report.  This is a separate project to the advice on a best practice retail price methodology.  The terms of reference for the 2013 Retail Electricity Price Trends report is available here.

Issues Paper

On 14 June 2013, the AEMC published an Issues Paper, which commenced the public consultation process for this advice. The purpose of this Paper was to seek stakeholder comments on:

• the proposed objective for retail price regulation, and its supporting principles; and
• the appropriate method for setting the key cost components of the regulated retail price, which include: wholesale energy costs; retail margins; and environmental scheme costs.

Submissions on the issues paper closed on Friday, 12 July 2013. Fifteen submissions were received from a range of stakeholders, including jurisdictional governments, regulators, retailers, consumer representatives and environmental groups.

Draft Report

Consistent with our terms of reference, we circulated a Draft Report to jurisdictions and jurisdictional regulators for their review and comment in August 2013.