Chairman of the Australian Energy Market Commission, John Tamblyn, today released the Rule Proposal Report (including the Proposed Rule) on a new framework for transmission pricing for prescribed transmission services. The Commission has called for submissions on the Rule Proposal by 25 September 2006.
"This Rule Proposal Report complements the Draft Revenue Rule in defining the regulatory framework to apply to transmission revenue and pricing in the National Electricity Market from 1 January 2007," Dr Tamblyn said.
The Pricing Rule Proposal clarifies the principles, methodologies and processes to be applied in determining prices for the recovery of regulated transmission revenues.
The Commission's Review of the electricity transmission Rules has better aligned the regulatory frameworks for revenue and prices so as to encourage efficient decision-making in both the monopoly network sector and the competitive electricity market.
- The revenue rules provide for the recovery of the efficient costs of supplying transmission services and the provision of incentives for efficient investment in, and supply of, transmission services while managing the capacity of Transmission Network Service Providers (TNSPs) to exercise market power by capping the aggregate revenues they can recover from customers. The revenue rules also provide a framework for determining the pricing of negotiated (non-prescribed) transmission services.
- The pricing rules will require TNSPs to develop pricing methodologies and practices which promote efficient electricity investment, production and consumption decisions by current and prospective network users.
The Rule proposal adopts a principles-based approach for developing price methodologies which will allow for continuation of current pricing approaches (Part C of Chapter 6 of the National Electricity Rules) while permitting innovation in pricing approaches over time.
It replaces the detailed requirements for cost allocation and pricing in the current Rules with a framework that combines principles dealing with the key design aspects of the pricing regime and guided discretion to service providers and the AER on matters of implementation and administration.
This principles-based pricing approach is supported by clear procedures for the assessment and approval of pricing methodologies by the AER in accordance with the principles in the Rules.
Under the Rule proposal, pricing methodologies are to:
- Be based on and consistent with the pricing principles in the Rules;
- Be subject to transparent processes to give market participants confidence that pricing outcomes will be consistent with the requirements of the Rules and the efficient performance of the electricity market; and
- Ensure that pricing methodologies are stable and predictable enough to enable market participants to make long term decisions.
The overall competitiveness and efficiency of the National Electricity Market depends on the efficient provision and pricing of transmission services. This Rule Proposal seeks to ensure that pricing arrangements for recovering the costs of transmission will further the long term interests of consumers in having efficient, reliable and competitively priced electricity services.
In developing the Proposed Pricing Rule the Commission has emphasised the role played by efficient transmission pricing in facilitating competition and resource use in the electricity wholesale and retail markets.
The Commission is now seeking comments from the public on this Rule Proposal before preparing its Draft Rule determination.
In formal terms, the AEMC is today releasing a section 95 notice under the National Electricity Law advising of a proposed Rule in addition to a Rule Proposal Report and is calling for submissions on the proposed Rule.
For information contact AEMC Chairman John Tamblyn
(02) 8296 7800
AEMC Public Affairs, Prue Anderson
(02) 8296 7800 or 0404 821 935