10.2.1 Regulatory frameworks
The objectives that underpin Australia’s electricity markets are set out in the Australian Energy Market Agreement, first signed by the Council of Australian Governments (COAG) on 30 June 2004, and in national energy laws that apply in the NEM—the National Electricity Law and the National Energy Retail Law. The aim is to promote efficient investment in energy services, and their efficient operation and use, in the long-term interests of consumers, including on measures of price, quality, safety, reliability and security of supply.
This objective reflects the need for market settings and regulation to efficiently balance prices with the maintenance of a high-quality and reliable energy service. This continues to be a point of tension in much of the current debate about recent price rises and market regulation. Trade-offs or balance points are not always set or applied transparently.
The National Energy Retail Law complements general consumer protection laws that apply at the state and territory and national levels, including the Australian Consumer Law. The National Energy Retail Law, and the rules and regulations under it, form the main part of the National Energy Customer Framework, which was applied by Tasmania, the Australian Capital Territory and the Commonwealth on 1 July 2012. Other participating jurisdictions are expected to apply the National Energy Retail Law as soon as is practical.
National Electricity Market
The operation and regulatory framework for the NEM is overseen by three independent institutions (described in Chapter 2: Energy in Australia): the Australian Energy Market Operator (AEMO), the Australian Energy Regulator (AER) and the Australian Energy Market Commission (AEMC).
The creation of the three independent bodies ensures that the day-to-day operation and regulation of the market are at arm’s length from governments, providing greater transparency, stability and confidence for market participants.
South West Interconnected System
Western Australia has its own institutional arrangements for electricity. The SWIS is serviced by two market institutions: the Independent Market Operator, which has the roles of both market operator and rule maker, and the Economic Regulation Authority, which acts as regulator. In addition, Western Power, as the owner and operator of the SWIS, has a ring-fenced component, System Management, that is responsible as a market governance participant for the secure and reliable operation of the SWIS and for managing the physical aspects of market dispatch. The Minister for Energy also has an ongoing role in the SWIS, being responsible for appointing the board of the Independent Market Operator and approving changes to protected provisions in the rules.
10.2.2 Market development activity underway
At the national level, the Standing Council on Energy and Resources (SCER) has an extensive work program addressing a range of market development needs on behalf of COAG. This includes developing and implementing national energy market legislation and the national electricity, gas and retail laws and rules; improving the efficiency of network regulation; pursuing greater competition in the retail sector, including by removing retail price regulation where effective competition exists; and developing a framework for efficient demand response in the market.
The SCER, energy market bodies and individual state and territory governments are taking action in a number of these areas. This work includes:
- regular assessments of the effectiveness of retail competition, pathways to remove pricing regulation where competition exists, and ways to develop competition where it is not yet effective
- ongoing work to ensure that transmission and distribution frameworks are delivering reliability through optimal investment and operating decisions by generators and network businesses
- an independent review of the limited merits review regime1 to assess whether the review and appeal process is delivering against its objective
- the development of options for market and regulatory arrangements to facilitate efficient demand-side participation.
The Australian Government has also initiated a public inquiry by the Productivity Commission to advise on the possible benchmarking of regulated network businesses and to examine whether the transmission regulatory regime is delivering efficient levels of interconnection to support the market. This work is due in 2013.
The COAG Select Council on Climate Change supports an effective response to climate change policy issues with national implications, and is responsible for overseeing the National Partnership Agreement on Energy Efficiency and for implementing joint measures related to energy use.
1 The limited merits review regime gives parties affected by the decisions of the energy regulator—mainly transmission and distribution network businesses—recourse to a review mechanism. Limits are placed on this mechanism to avoid revisiting settled decisions and to minimise uncertainty.