Market Review: Completed

Overview

In 2005, on its establishment, the AEMC initiated the first major review of electricity transmission revenue requirements and prices since the National Electricity Market started in 1998. This review addressed the need for certainty by codifying regulatory guidelines and current practice in the Rules. It addressed the need for balance by giving transmission businesses adequate incentive to invest while ensuring users pay efficient prices for reliable services. On 16 November 2006 the AEMC published its Final Determination and Rule relating to transmission revenues. On 26 December 2006 the AEMC published its Final Determination and Rule relating to transmission pricing.
View more

<p>
In 2005, on its establishment, the AEMC initiated the first major review of electricity transmission revenue requirements and prices since the National Electricity Market started in 1998. This review addressed the need for certainty by codifying regulatory guidelines and current practice in the Rules. It addressed the need for balance by giving transmission businesses adequate incentive to invest while ensuring users pay efficient prices for reliable services. On 16 November 2006 the AEMC published its Final Determination and Rule relating to transmission revenues. On 26 December 2006 the AEMC published its Final Determination and Rule relating to transmission pricing.</p>
<h2>
Background</h2>
<p>
Transmission businesses move electricity from generators to customers. They are natural monopolies because it is uneconomic to duplicate their multi-billion dollar network. Investment required to take part in this industry is massive.&nbsp;</p>
<p>
Rules are set by the AEMC to govern regulation of these businesses (which are enforced by the Australian Energy Regulator) to make sure customers are not charged unreasonable prices. The Rules which determine how transmission revenue and prices are found in Chapter 6 of the National Electricity Rules.&nbsp;</p>
<p>
The National Electricity Law (NEL), Section 35, requires the AEMC to amend the Rules (Chapter 6) governing economic regulation of electricity transmission revenue requirements and prices.</p>
<p>
This review amended the National Electricity Rules to introduce a new regime for regulation of the electricity transmission sector. This new regime focused on building an environment for efficient long-term investment by;&nbsp;</p>
<ul>
<li>
Increasing the predictability and openness of economic regulation by providing clear Rules on regulatory procedures for the first time; and</li>
<li>
Aligning incentives for transmission businesses to maintain appropriate service levels and reduce costs in line with customer needs for an efficient market which offers the best prices possible.&nbsp;</li>
</ul>
<p>
Recognising the significance of the Review, the AEMC conducted the Review in two stages.</p>
<p>
<strong>Statement of regulatory principles - revenue cap reopening</strong>&nbsp;<strong> </strong></p>
<p>
The above proposal was submitted originally to NECA, by Electranet on behalf of certain transmission network service providers (including Electranet) on 11 April 2005. The substance of the proposal (including the proposed Rule provisions) were addressed in the Commission&#39;s review of the rules relating to Electricity Transmission Revenue and Pricing and the associated Rules that were made in 2006 (Rule No.18 and Rule No.22 of 2006). On 31 May 2007, the Commission determined to discontinue the Rule making procedure on this Rule proposal. Therefore under clauses 19 and 20 of Schedule 2 of the NEL, the AEMC has re-exercised the power under section 94 and determined not to take further action. Relevant documents can be found below.&nbsp;</p>
<p>
<strong>Transmission Pricing Review - Final Determination and Rule</strong></p>
<p>
The Commission published a Final Rule Determination, accompanying National Electricity Amendment (Pricing of Prescribed Transmission Services) Rule 2006 No.22 under sections 102 and 103 of the NEL. Notices for this Rule which relates to the regulation of transmission prices and other related matters, were published on 21 December 2006. The completion of the pricing component finalises the AEMC&#39;s obligations under the NEL for the review of economic regulation of transmission services review.&nbsp; View the <a href="~/Rule-Changes/Economic-Regulation-of-Transmission-Services">Rule determination and accompanying Rule</a>.</p>
<p>
<strong>History of Rule making process</strong><br />
Section 35 of the National Electricity Law (NEL) requires the Australian Energy Market Commission (AEMC) to amend the National Electricity Rules (NER) governing economic regulation of electricity transmission revenue and prices on or before 1 July 2006, or a later date that is prescribed under a Regulation made under the NEL.<br />
<br />
The MCE <a class="cManager" href="~/Media/docs/Letter from MCE (23 May 2006)-3782c1e4-67b5-487a-8e6b-d3535889f0b5-0.pdf" id="mid-3782c1e4-67b5-487a-8e6b-d3535889f0b5" target="_blank">made a regulation under the National Electricity Law</a>made a regulation under the National Electricity Law that extends the time to make Rules governing the regulation of electricity transmission revenue and prices to 1 January 2007. This extension to the deadline enabled the Commission to consider the economic regulation of transmission services in broadly two streams - revenue and pricing.<br />
<br />
<strong>Transmission Revenue Regulation</strong><br />
<br />
<strong>Final Determination and Revenue Rule as made</strong><br />
The Commission issued a Final Rule Determination, including the National Electricity Amendment (Economic Regulation of Transmission Services) Rule 2006 No.18 on 16 November 2006 under sections 102 and 103 of the NEL. The notices were published on 16 November 2006, and commenced operation on that date. This Rule relates to transmission revenues.</p>
<p>
<strong>Draft Revenue Rule</strong><br />
The Commission issued a Draft Determination and the Draft Revenue Rule (the National Electricity Amendment (Economic Regulation of Transmission Services) Rule 2006 on 26 July 2006 under section 99 of the NEL. The notices were published on 27 July 2006.<br />
<br />
Submissions were due by 11 September 2006. No requests for a hearing were received by 3 August 2006.<br />
<br />
<strong>Initial Rule Proposal</strong><br />
The Commission published a <a href="~/Rule-Changes/Economic-Regulation-of-Transmission-Services">Rule proposal report and accompanying draft Rule</a> on 16 February 2006, commencing the first consultation round of the Rule making process for the proposed National Electricity Amendment (Economic Regulation of Transmission Services) Rule 2006. Submissions in relation to this Rule Proposal closed on 20 March 2006.<br />
<br />
A public hearing in relation to the above Rule Proposal was held on 8 March 2006. Handouts, presentations and a transcript of the public hearing can be viewed on the <a href="~/Rule-Changes/Economic-Regulation-of-Transmission-Services">Economic Regulation of Transmission Services</a> Rule change page.<br />
<br />
Consultation on the Rule Proposal for Transmission Revenue resulted in a large volume of submissions (26 submissions totaling approximately 670 pages). In order to facilitate a thorough analysis of the issues raised in these submissions, publication of the Draft Determination was delayed under section 107 of the NEL until 29 June 2006. A further section 107 notice was issued on 29 June 2006 to enable the completion of the last stage of the Commission&#39;s analysis and processes. The delay in releasing the Draft Determination has also permitted the Commission to simplify the Rules as much as possible, in response to industry comments.<br />
<br />
The <a href="~/Rule-Changes/Economic-Regulation-of-Transmission-Services">Draft Determination and Draft Rule</a> were released on 27 July 2006. The Commission intends to issue a final determination following a second round of consultation in the third quarter of 2006.<br />
<br />
<strong>Transmission Pricing Regulation</strong><br />
<br />
<strong>Final Determination and Rule as made</strong><br />
The Commission published a notice on 21 December 2006 under sections 102 and 103 of the National Electricity Law, of the making of the National Electricity Amendment (Pricing of Prescribed Transmission Services) Rule 2006 No.22 and the corresponding final Rule Determination. The Rule Determination largely confirms the continuation of the existing pricing methodology while also providing scope for innovation and evolution into the future. The Rule commences operation on 28 December 2006.<br />
<br />
<strong>Draft Pricing Rule</strong><br />
The Commission issued a Draft Determination, the accompanying Draft Pricing Rule (the National Electricity Amendment Pricing of Prescribed Transmission Services) Rule 2006 and a section 99 notice on 19 October 2006.</p>
<p>
Submissions closed on 30 November 2006.</p>
<p>
<br />
<strong>Initial Pricing Rule Proposal</strong><br />
Under its initial timetable for the review of the Pricing stream of the economic regulation of transmission services, the Commission had advised that it would publish an options paper and undertake a further round of informal consultation in March 2006.<br />
<br />
However, the Commission was satisfied that the extensive response received in respect of the issues paper for pricing warranted proceeding straight to a formal Rule proposal and consultation for pricing. This was to assist in meeting the timetable for the Review, but also recognise the demands placed on participants from a variety of consultation processes. The <a href="~/Rule-Changes/Economic-Regulation-of-Transmission-Services">Rule proposal</a> was published on 24 August 2006.<br />
<br />
<strong>Pre-Rulemaking Consultation Processes</strong><br />
In undertaking this Review, the Commission adopted the following consultation steps in preparation for the formal Rule making procedure set out in the NEL:</p>
<ul>
<li>
Release of a Scoping Paper on 29 July 2005;</li>
<li>
An Issues Paper addressing transmission revenue requirement regulation, published on 19 October 2005; and</li>
<li>
An Issues Paper addressing transmission price regulation, published on 14 November 2005.</li>
</ul>
<p>
These papers, and submissions received in response to them, are available below.&nbsp;</p>

View less

Documentation

INITIATION

AEMC documents

Proposal documents

Submissions

Submissions on Issues Paper