Energy regulation needs overhauling, Productivity Commission says

An overhaul is required for energy regulation and ownership arrangements for electricity networks, according to a draft report by the Productivity Commission. The commission is seeking public feedback on its draft proposals, outlined in the Electricity Network Regulatory Frameworks draft report.

As much as half of the average power bill goes towards the cost of electricity networks, the report found. The increase in electricity prices over the last five years has been largely caused by network cost increases.

“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 report shows that a few peak periods of demand - mainly hot spells in summer - require huge amounts of infrastructure. The commission’s recommendation is for phased introduction of more cost-based pricing, combined with smart technologies. This would cut network costs, the commission says, as well as ending the large hidden subsidies, often from lower income households, to people who use a lot of power at peak times.

The report recommends that all state-owned network businesses be privatised but remain strongly regulated. The report claims this would improve efficiency and avoid the conflicting mix of state government influences on their corporations.

A new industry-funded consumer body should be created, the commission recommends, which should have enough expertise to contribute to regulatory determinations and merit reviews. The commission also proposes a national, consumer-focused approach to reliability standards. These standards vary across states and can require costly investment to achieve a far higher level of reliability than consumers would otherwise choose.

The commission will deliver its final report to the government in April 2013, following consideration of public feedback. The full report is available here.