Australia’s NEM electricity networks need regulatory overhaul, report finds


Philip Weickhardt,
Melbourne, Australia — (METERING.COM) — November 1, 2012 – The regulation and ownership arrangements for the electricity networks of Australia’s national electricity market (NEM) require overhaul, according to a new draft report by the Productivity Commission.

The costs of the electricity networks now represent as much as half of people’s average power bills. And network cost rises are responsible for much of the 50 percent surge in electricity prices over the last five years.

The NEM is the system for managing the production and transport of power throughout eastern Australia.

According to the two volume 730 page report, the network and generation capacity is based on meeting the peak demand. But peak demand events occur for less than 40 hours per year, mostly during hot spells in summer.

To strengthen demand management the Commission recommends the phased introduction of more cost-based pricing, combined with smart meters and associated technologies. This should cut network costs and end the large hidden subsidies, often from lower income households, to people who use a lot of power at peak times.

The Commission also recommends the creation of a new industry funded consumer body, with enough expertise to contribute to regulatory determinations and merit reviews. It also proposes a national, consumer-focused, approach to reliability standards. These can vary without reason across states, and sometimes require costly investments to achieve a much higher level of reliability than consumers would otherwise choose.

Another area where efficiency could be improved is if all state-owned network businesses be privatized (but remain strongly regulated). This would also avoid the conflicting mix of state government influences on their corporations. Further, over the shorter run, there is limited scope to use regulatory benchmarking, which rewards businesses based on their relative efficiency.

“The current regulatory regime is undermining the capacity of network business managers to run their businesses efficiently, and puts up barriers to consumer involvement,” said Philip Weickhardt, the presiding commissioner for the inquiry. “There is no quick fix, but our proposed reforms can deliver a more efficient system and potentially save billions of dollars.”

The draft report is open for public feedback, which should be submitted by November 23. A final report should be delivered to the government in April 2013.