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regulatory environment

The current method of regulation in Australia is based on the heavy handed "Building Blocks" model which is based on the theoretical Capital Asset Pricing Model and includes:

• Forecasting cost five years in advance including weather calculations;
• Basing prices on variables that cannot be directly observed in the economy; and
• Forecasting efficiency gains over the five years.

United Energy Distribution supports the implementation of the Productivity Commissions Review of the National Gas Access Regime as the basis for electricity and gas regulation as:

• It establishes a clear link between the ability to exert market power and the level or form of regulation;
• Proposed alternative forms of regulation such as Price Monitoring which updates prices by the CPI and does not regulate costs;
• Supports the use of merit and judicial review of regulators decisions; and
• Was strongly critical of the "Building Blocks" regulatory model as too uncertain and costly and that it discouraged investment in essential infrastructure.

The Council of Australian Governments (COAG) has determined that the basis of energy infrastructure (electricity and gas) should be national rather than state based to simplify regulation and reduce its costs to the community. The COAG has established the Ministerial Council of Energy who is dealing with:

• The shift of all energy related price regulation to the Australian Economic Regulator (AER) (rule implementation) and to the Australian Energy Management Commission (rule development);
• The progressive shift of gas transmission, gas and electricity distribution and retail regulation to the AER; (except for Western Australia) and
• The development of new regulatory models for regulation.

The new form of regulation and the progressive shift of distribution and retail regulation to the national model have yet to be determined.

Relevant submissions and presentations: