Review of the National Framework for Distribution Reliability – Final Report

The Australian Energy Market Commission today recommended an approach to setting reliability levels in the National Electricity Market which takes better account of how much people may be prepared to pay for reliability.

The level of spending on electricity networks to meet the reliability standards which are set by jurisdictions around the nation feeds into system costs – and ultimately affects the electricity prices paid by households and businesses.

Electricity distribution services are provided by monopoly companies. The prices they can charge for building networks are regulated. Reliability regulation complements price regulation to protect customers by guarding against incentives for networks to reduce reliability in order to increase profits.

AEMC Chairman John Pierce said there was scope to improve the efficiency of network investment in the NEM by applying a framework which makes the decision on the appropriate reliability level independent from the network business and is informed by the value placed by customers on reliability.

“Late last year the AEMC introduced new rules to give the Australian Energy Regulator more discretion to set network prices so consumers don’t pay more than necessary for reliable supplies of energy.

“Today’s report is another step forward in our reform program to involve consumers more in decisions which affect their energy supplies and the cost of services,” Mr Pierce said.

“Our aim is to put governments, networks and the general community in a more informed position so that investment options can be developed and understood – enabling robust investment decisions to be made in the long term.

Efficiency savings might be limited in the short run given the significant amount of capital which has already been invested over the past decade to address historical demand conditions.

“The benefit to consumers from a more efficient process for deciding how much network investment is necessary to meet community expectations will be felt in the years ahead.

“Now is a good time to consider such reforms given slowing demand growth and lower requirements for network investment. This changing industry environment provides us with an opportunity to introduce a new national framework under relatively stable network conditions,” Mr Pierce said.

There is also an opportunity for capture some of the benefits in the near term through establishing key tools to apply to existing arrangements ahead of the full implementation of the framework.

For information, contact:

AEMC Chairman, John Pierce (02) 8296 7800

Media: Communication Manager, Prudence Anderson 0404 821 935 or (02) 8296 7817

27 September 2013