This proposed rule change sought to allow the use of total factor productivity (TFP) methodology as an alternative economic regulation methodology to be applied by the Australian Energy Regulator (AER), in approving or amending price or revenue determinations for distribution network service providers.

On 22 December 2011 the AEMC published its final determination in relation to this rule change. The Commission determined not to make the rule proposed as it considered that the relevant market conditions necessary for its effective implementation are not yet in place.

Background to the rule change request and TFP review

On the 23 June 2008, the Victorian Minister for Energy and Resources submitted a rule change request to allow for the use of a TFP methodology as an alternative economic regulation methodology to be applied by the AER in approving, or amending, determinations for electricity distribution service providers.

On 24 July 2008, the Commission published a notice under section 95 of the National Electricity Law (NEL) advising of its intention to commence the rule making process, and the first round of consultation, in respect of the rule change request. However, as a result of the submissions received, on 21 November 2008 the Commission initiated a review entitled Review into the use of total factor productivity for the determination of prices and revenues.

Following the initiation of the review, the timing for publication of the draft rule determination was extended under section 107 of the NEL on three occasions: 

• on 27 November 2008 the Commission published a notice under section 107 of the NEL extending the time period for making the draft rule determination to 31 December 2009;
• on 23 July 2009 a further notice was published extending the time period to 1 October 2010; and
• on 30 September 2010 another notice extended the time period to 1 October 2011.

The final report of the review was published on 7 July 2011.

A draft rule determination in respect of this rule change request was published on 29 September 2011.