A draft report by the Productivity Commission, Electricity Network Regulation Frameworks, has found that regulation and ownership arrangements for electricity networks require overhaul.
The costs of electricity networks — the wires and poles criss-crossing Eastern Australia — now represent as much as one-half of people’s average power bills. Network cost rises are responsible for much of the surge in electricity prices over the last five years.
Philip Weickhardt, the Presiding Commissioner for the inquiry, said: ‘The current regulatory regime is undermining the capacity of network business managers to run their businesses efficiently, and puts up barriers to consumer involvement. There is no quick fix, but our proposed reforms can deliver a more efficient system and potentially save billions of dollars.’
The report says that a few periods of peak demand — mostly during hot spells in summer — require huge amounts of infrastructure. The Commission recommends the phased introduction of more cost-based pricing, combined with smart technologies. It says this would 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.
The report also recommends that all state-owned network businesses be privatised (but remain strongly regulated). It finds that this would improve efficiency and avoid the conflicting mix of state government influences on their corporations.
The Commission finds that over the shorter run, there is limited scope to use regulatory benchmarking, which rewards businesses based on their relative efficiency. It notes that fixing the flaws of the regulatory framework would in any case be a prerequisite to its meaningful use.
The Commission is seeking public feedback on its draft proposals. Its final report will be delivered to Government in April 2013.