On 27 November 2014, the AEMC made a new rule to require network businesses to set prices that reflect the efficient cost of providing network services to individual consumers. This will allow consumers to make more informed decisions about their use of electricity.

The rule establishes a new pricing objective and new pricing principles for distribution businesses that will require that network prices reflect the efficient costs of providing network services. This will allow consumers to compare the value they place on using the network against the costs caused by their use of it. Consumers who choose to respond to network prices by reducing their consumption in higher cost periods will be rewarded through lower network charges.

The rule also contains new processes and timeframes for setting network prices. This will require distribution businesses to consult with consumers and retailers to develop a tariff structure statement that outlines the price structures that they will apply for the regulatory period. This statement will be approved by the AER as part of the five-year regulatory reset process. The businesses will also publish annually an indicative pricing schedule to provide consumers and retailers with the most up to date information on likely price levels throughout the regulatory period. This new process will lead to increased certainty, transparency and timeliness with respect to network pricing for consumers.

Network prices based on the new pricing objective and pricing principles will be gradually phased in from 2017. Under the final rule, network businesses will need to submit their initial tariff structure statement to the AER by late 2015.

Background

On 18 September 2013, the Council of Australian Governments Energy Council (COAG Energy Council) submitted a rule change request to improve the arrangements within the national electricity rules by which distribution network prices are set and structured. This rule change request is in response to recommendations made to COAG Energy Council in the Power of Choice review.

Due to a significant overlap of issues, COAG Energy Council’s rule change request was consolidated with the Annual Network Pricing Arrangements rule change that was initiated by the AEMC on 6 June 2013. This rule change was requested by the Independent Pricing and Regulatory Tribunal (IPART) and sought to amend the timing of the annual pricing process for earlier notification of network prices and introduce greater certainty and consultation into the annual network pricing process.

The AEMC commenced consultation on the consolidated rule change request on 14 November 2013.