The AEMC announced the commencement of a review into the use of total factor productivity (TFP) for the determination of revenues and prices on 21 November 2008 (TFP Review). This review will consider the application of a TFP methodology to the economic regulation of services provided by electricity and gas distribution and transmission service providers.
The need for this review was identified as a priority by the AEMC following its consideration of initial submissions on the Rule change proposal Total factor productivity for distribution network regulation lodged by the Victorian Minister for Energy and Resources.
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The AEMC announced the commencement of a review into the use of total factor productivity (TFP) for the determination of revenues and prices on 21 November 2008 (TFP Review). This review will consider the application of a TFP methodology to the economic regulation of services provided by electricity and gas distribution and transmission service providers.
The need for this review was identified as a priority by the AEMC following its consideration of initial submissions on the Rule change proposal Total factor productivity for distribution network regulation lodged by the Victorian Minister for Energy and Resources.
Background
On 21 November 2008, the AEMC announced that it would conduct a review into the possible applications of a TFP methodology in the determination of prices and revenues (TFP Review). This review is seeking to provide advice to the Ministerial Council on Energy (MCE) on:
- the circumstances in which an application of a TFP based price setting methodology would contribute to the National Electricity Objective (NEO) and National Gas Objective (NGO);
- the arrangements (including information, reporting and data requirements) that need to be put in place to facilitate its application; and
- as appropriate, the development of proposed rules to support the applications of a TFP based form of control for any individual or group of electricity or gas distribution or transmission service providers.
The AEMC will adopt a staged approach to addressing the question of whether a TFP methodology should be used in pricing and revenue decisions. First, the AEMC will make an assessment of whether it considers that a TFP methodology would promote either the NEO and/or NGO and therefore should have a role in the relevant decision making processes. In doing so, the AEMC will look at the possible range of models for applying a TFP methodology and will assess the issues relevant to the Rule change proposal. At the end of this stage, the AEMC will provide its findings to the MCE for its consideration (Stage 1 Final Report).
If the AEMC considers that rules should be made to facilitate the use of a TFP methodology for either, or both, gas decisions or electricity determinations it will then proceed to develop its recommended draft Rules to be submitted to the MCE (Stage 2 Final Report). In doing so, the AEMC will have regard to considerations from the MCE on the Stage 1 Final Report.
On 28 April 2009, the AEMC published a revised statement of approach including a revised timeline for the TFP Review. This revised approach was formed to address issues raised in submissions to the Issues Paper. As part of this process, the AEMC published three consultant reports in June 2009.
On 23 July 2009, the AEMC revised its timeline for the TFP Review to allow for sufficient time to take into consideration:
- new material and submissions that have been received; and
- the development of a TFP design discussion paper.
On 28 August 2009, the AEMC released its TFP design discussion paper. Submissions closed on 30 October 2009.
The AEMC also held two workshops with regard to the design discussion paper in Sydney on 28 September 2009 and 2 October 2009. The first workshop focused on the electricity sector, while the second workshop focused on the gas sector. All stakeholders were invited to attend these workshops. Presentations and a summary of the discussions at these workshops are available.
On 17 December 2009, the AEMC released its preliminary findings paper with three accompanying consultants' reports. Submissions closed on 26 February 2010.
On 1 February 2010, the AEMC held a public forum in Melbourne with respect to the preliminary findings. Presentations and a summary of these discussions at this forum are available.
On 1 July 2010 the AEMC released a TFP model prepared by consultants Economic Insights. This model is accompanied by an analysis of various scenarios and a technical report. Stakeholders that wish to attend a workshop in regard to the model should register with the AEMC via registration@aemc.gov.au. Please quote the project reference EMO0006 (TFP Review) in your email. If there is sufficient interest, the AEMC will host a workshop with stakeholders and Economic Insights.
It is anticipated that the draft report will be released for comment in September 2010.
The key dates for the TFP Review process are:
| Date |
Stage |
| 12 December 2008 |
Release of framework and issues paper |
| 11 February 2009 |
Framework and issues paper public forum |
| 27 February 2009 |
Submissions on framework and issues paper due |
| 28 April 2009 |
Revised statement of approach paper |
| June 2009 |
Release of consultant reports |
| 28 August 2009 |
Release of TFP design discussion paper |
| 28 September and 2 October 2009 |
Workshops on TFP design discussion paper
- 28 September 2009: electricity sector
- 2 October 2009: gas sector
|
| 30 October 2009 |
Submissions on design discussion paper due |
| 17 December 2009 |
Release of preliminary findings |
| 1 February 2010 |
Public Forum on preliminary findings |
| 26 February 2010 |
Submissions on preliminary findings due |
| 1 July 2010 |
Release of TFP model and technical report |
| September 2010 |
Release and consultation of stage 1 draft report |
| November 2010 |
Stage 1 final report to MCE |
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