Consumer Action welcomes the opportunity to provide a submission to the Senate Standing Committee on Environment and Communications about the performance and management of electricity network companies.
Our submission does two things. First, it outlines a history of the development and application of network price determination rules. Second, it identifies a number of current and future issues for consideration to ensure the framework for regulating electricity network businesses better protects consumers.
Electricity network businesses are monopoly, for-profit businesses. Given this, and given investors expect the highest returns on investments, it should not be surprising that network businesses will seek to maximize their returns. In most markets, competition and consumer demand plays a mediating role ensuring that businesses are not able to profiteer or be inefficient. If they do so, a competitor will take their business. In monopoly markets like electricity networks, regulation is required to play this role. As such, the effectiveness of that regulation is important. Whether regulation is effective is dependent on whether it can play the same role that consumers play in competitive markets.
The history of the development and application of network price regulation outlined demonstrates that consumer interests have not been placed at the centre of decision-making at key points—during policy development, rule-making, price determination processes, and appeals processes. We conclude, however, that it is the policy and rule-making areas that have most limited the regulator, the Australian Energy Regulator, making decisions that protect consumers by ensuring prices are no more than is efficient or necessary.
The current and future issues raised include:
- the adequacy of consumer consultation and input into rule-making and regulatory decision-making;
- institutional arrangements, and the effectiveness of market governance;
- challenges to the business models of network businesses, including:
- likely market developments following pricing rule changes and technological developments; and
- the need to write down the value of assets in light of changing role of networks; and
- alternative regulatory arrangements, such as ‘negotiated settlements’.
A full copy of our submission is available by clicking: The performance and management of electricity network companies.