AER annual report 2011-12 - transcript

Published: 21 January 2013

Summary:  AER Chairman Andrew Reeves talks on the annual report for 2011-12.


Hello, I’m Andrew Reeves, the Chairman of the Australian Energy Regulator and I would like to share some highlights from the year with you. 

2011-12 marked the seventh anniversary of the AER. This year we achieved two significant milestones. Firstly, on the network regulation front, the AER completed the first round of price determinations for all network businesses under the National Electricity Rules which commenced in 2006.  In light of this experience, we proposed changes to the network regulation rules. Secondly, 2011-12 saw the AER prepare for our responsibilities under the National Energy Retail Law.

I’d like to share a bit more detail on each of these milestones.

One of the AER’s key priorities is to promote network regulatory arrangements that meet the long-term needs of consumers. The AER sets the prices charged by over 30 Australian energy network businesses for using electricity poles and wires and gas pipelines to transport energy to consumers. The energy legislation requires us to regulate the networks under rules that should promote efficient investment and deliver prices and reliable supply that meet the long-term interests of consumers.

There have been substantial increases in network charges over the past five years. Our experience of operating under the current rules framework, led the AER to propose changes in the national energy rules in September 2011. While recognising the fundamental drivers of higher network costs — that is new investment required to meet growth in demand, replacement of ageing assets, and higher costs for finance, labour and materials — we also considered that changes were needed to allow us to set prices that better promote efficient network investment and advance the long-term interests of consumers. 

The AER has been concerned for some time that the current rules led to consumers paying more than necessary for a reliable and safe supply of energy.  

The Australian Energy Market Commission, the rule-making body, issued a draft decision in August 2012 that has supported the thrust of our proposed changes. 

We consider that these changes would better align what consumers are willing to pay for the delivery of reliable network services, while giving network businesses certainty that efficient costs can be adequately recovered. The revised rules are expected to be finalised by November 2012 and the AER will be working with stakeholders to develop guidelines in time for the next round of network price determinations.

The second milestone I’d like to share with you is the work the AER has done in preparation for national retail regulation throughout 2011-12. The AER has worked with customer representatives, businesses and policy makers, in anticipation of the start of the National Energy Retail Law on 1 July 2012. 

Under this legislation, which has commenced in Tasmania and the ACT, our responsibilities in retail energy markets now include ensuring that small energy customers are adequately protected and encouraged to engage in the market. We have been working with stakeholders from many quarters and will continue to engage with customers to strengthen their understanding of the new retail law, and build confidence in the protection framework. This covers such matters as obligations on retailers in their dealings with customers in financial hardship and door to door selling. 

Other matters include arrangements to ensure consumers continue to receive energy supply in the event that a retailer fails. We are also working with businesses to ensure they are aware of and complying with their obligations under the new rules.

Additionally, we developed an energy price comparison website, Energy Made Easy, to assist consumers compare their household's electricity usage with similar sized households in their area. Energy Made Easy also provides information and advice on a range of energy topics including contracts, energy efficiency and customer protection. 

In 2011-12, the AER continued its work in monitoring and reporting on activity in the gas and electricity wholesale markets.

We remain concerned about the bidding practices of some generators and the impact on spot prices. 

Another focus was monitoring compliance in the gas short-term trading market. Numerous failures in the timeliness and accuracy of market data led us to adopt a tougher line in enforcement of the relevant rules as well as a targeted education campaign to remind the industry of its obligations. 

Similarly, we developed a new monitoring and enforcement strategy for electricity generators after issues arose about the quality of information we received when bids are altered. 

The rising cost of energy, particularly electricity, has brought an increased focus on the energy industry and remains an ongoing issue for consumers, and the AER.

The need to ensure consumers are central to the decisions made by the AER and energy businesses, and that consumers are only paying for services that they value, is something the AER has been advocating for some time. 

The AER recognises that we and the energy businesses must improve engagement with consumers to ensure regulatory processes are informed by what consumers require from energy services. 

In conclusion, I note that 2011-12 has seen considerable attention on electricity prices and a number of reviews are underway in relation to several aspects of the regulatory framework. 

The AER looks forward to the outcome of these reviews. We will continue to develop our approach to regulation of monopoly network businesses.  The AER will also continue to ensure that the long-term interests of consumers is central to our work.