The Government has today released the terms of reference for an inquiry by the Productivity Commission into aspects of national electricity network regulation, as foreshadowed at the time of the release of the Clean Energy Future package.
The Minister for Resources and Energy, Martin Ferguson, AM MP chaired today’s meeting of the Ministerial Standing Council on Energy and Resources, where State and Territory Energy Ministers discussed the importance of robust regulatory frameworks and were provided with the terms of reference for the Productivity Commission inquiry.
“Australia’s energy sector is facing a number of challenges in the years ahead. In particular, significant investment will be required in our electricity networks to replace and upgrade ageing assets to meet growing levels of demand reliably and facilitate a transition towards clean energy technologies,” Minister Ferguson said.
“The cost of upgrading and building new network infrastructure has flowed through to increases in electricity prices for consumers in recent years, and these price rises reflect the costs associated with maintaining reliability and meeting demand growth.
“Critical to delivering our energy needs is ensuring that our network regulatory frameworks are delivering efficient and reliable outcomes for consumers.
“Recognising the need to periodically test regulatory settings, this inquiry provides an opportunity to ensure Australia's network regulatory regime is delivering maximum efficiency in the long-term interests of consumers.”
The inquiry by the Productivity Commission will test whether there are any barriers in the regulatory framework to the greater use of productivity benchmarking by energy networks, which could deliver more efficient outcomes to consumers. It will also examine if efficient levels of transmission interconnectors are being delivered to support the efficient operation of the National Electricity Market.
This work is intended to build on the work underway on efficient network regulation and transmission frameworks by the Australian Energy Regulator and the Australian Energy Market Commission.
The Productivity Commission is expected to commence the inquiry in January 2012 and will be required to deliver its final report to the Government within 15 months. As part of this process, a draft report will be released for consultation and public hearings will be conducted.
The Terms of Reference are below. For more information, visit the Productivity Commission’s website www.pc.gov.au
Terms of reference – Productivity Commission Inquiry into Electricity Network Regulatory Frameworks
I, Bill Shorten, Assistant Treasurer and Minister for Financial Services and Superannuation, pursuant to Parts 2 and 3 of the Productivity Commission Act 1998 hereby request that the Productivity Commission undertake an inquiry into electricity network frameworks, focussing on benchmarking arrangements and the effectiveness of the application by network businesses of the current regulatory regime for the evaluation and development of interregional network capacity in the National Electricity Market (NEM).
Background
Australia’s electricity sector is facing a number of challenges over the coming years. This includes a large investment requirement for networks to replace ageing assets, meet growing levels of peak demand, reliability requirements and to facilitate the transition towards Australia’s clean energy future.
Recent increases in network expenditure, and the resultant flow on to increases in electricity prices for end users, have highlighted the need to ensure networks continue to deliver efficient outcomes for consumers. Network regulation is a complex task requiring difficult and technical judgements. This inquiry will inform the Australian Government about whether there are any practical or empirical constraints on the use of benchmarking of network businesses and then provide advice on how benchmarking could deliver efficient outcomes, consistent with the National Electricity Objective (NEO). In addition, a second stream of this inquiry will examine if efficient levels of transmission interconnectors are being delivered, to inform the Australian Government about whether the regulatory regime is delivering efficient levels of interconnection to support the market.
Scope of the Inquiry
The Commission is requested to assess the use of benchmarking as a means of achieving the efficient delivery of network services and electricity infrastructure to meet the long term interests of consumers, consistent with the NEO. In addition, the Commission is requested to assess whether the current regulatory regime, as applied to interconnectors, is delivering efficient levels of network and generation investment across the NEM.
In undertaking the review, the Commission should:
- examine the use of benchmarking under the regulatory framework, incorporating any amendments introduced in the review period, in the National Electricity Rules and provide advice on how different benchmarking methodologies could be used to enhance efficient outcomes; and
- examine whether the regulatory regime, with respect to the delivery of interconnector investment in the NEM, is delivering economically efficient outcomes.
In undertaking the inquiry, the Commission should consider and take into account the work that is currently being progressed through the Standing Council on Energy and Resources, the Australian Energy Market Commission (AEMC) and the Australian Energy Regulator (AER). The Commission should have particular regard for the AEMC reviews into transmission frameworks, power of choice (demand side participation) and the suite of rule changes relating to network regulation currently under consideration by the AEMC in accordance with its statutory obligations.
The Commission should engage with the AEMC, the AER and the Australian Energy Market Operator in undertaking the review. In addition, the Commission should consult with Australian Government agencies, state and territory government agencies and other key stakeholders in undertaking the review.
The Commission will report within 15 months of receipt of this reference and will hold hearings for the purpose of this inquiry. The Commission is to provide both a draft and a final report, and the reports will be published. The Government will consider the Commission’s recommendations, and its response will be announced as soon as possible after the receipt of the Commission’s final report.