The Australian Energy Market Commission (AEMC) is proposing updates to the rules that govern how gas networks are regulated as thousands of Australians switch from gas to electricity.
The AEMC’s draft package introduces a suite of reforms that work together to address these challenges, with new transparency requirements for service providers, better tools for regulators, and measures to keep prices reasonable over the long term.
AEMC chair Anna Collyer said the proposed changes would mean safe and reliable gas supply for those who need it and better safeguards for consumers who remain on the gas network in the years to come.
“Our draft package lays the foundations for an orderly, consumer-led transition that puts households and businesses in the driver’s seat,” Collyer said.
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“Despite uncertainty about future gas demand, government policies and transition timelines, we cannot afford to delay action, it will only allow the problem to grow, become more costly, and harder to resolve.”
One of the most significant updates in the AEMC’s proposal is to introduce a 20-year outlook alongside the five-year regulatory framework for gas network arrangements.
This would introduce new requirements for service providers and the regulator to demonstrate they have considered the long-term impacts of the transition on customer services when developing proposals and making decisions. This means issues can be identified early, while there is still time to respond.
A key feature of the draft reforms is to better align the recovery of costs with the expected use of the network over time. As part of this, the AEMC is proposing that the service provider and regulator must consider the most efficient approach to recovering costs. For example, considering the period over which gas network investments are recovered so that cost recovery and ongoing service provision remain sustainable for longer.
For some gas networks, this could mean modest cost increases for those who continue to use gas in the near-term, giving gas providers a reasonable opportunity to recover their past investments, while reducing the risk of high and volatile prices for future consumers. This, in turn, would ensure service providers can continue to provide safe and reliable supply of gas for as long as consumers and communities continue to rely on it.
Collyer said if consumer demand falls significantly and parts of the network become underutilised, the costs of these assets would not be transferred to households and businesses.
“Service providers have a strong incentive to price reasonably—if gas costs more than the alternatives, customers will switch,” Collyer said.
“However, if recovering the full cost of the network would push prices beyond what customers would pay for an alternative energy source, there would now be tools for the regulator to intervene.
“In this scenario, our draft package provides the regulator with the tool to reduce the value of a service provider’s asset base, meaning a clear reduction of prices for consumers if some parts of the network become underused.”
The AEMC is also proposing measures to minimise the risk of future cost increases. One of these is to strengthen existing provisions to minimise unnecessary expenditure being passed from networks to consumers, by using forecast demand, instead of existing demand, to justify costs.
Energy Consumers Australia (ECA) called the AEMC’s draft determination a “profound disappointment and a step in the wrong direction”.
ECA CEO Dr Brendan French said, “Instead of protecting consumers, this decision would leave consumers left holding the tab for Australia’s shrinking gas networks. It would deal another blow to households and small businesses already facing significant cost-of-living pressures.
“Energy Consumers Australia, along with the Justice and Equity Centre, proposed rule changes to ensure consumers are treated fairly as Australian households and small businesses transitions away from the gas network.
“While the AEMC has agreed that consumers face real risks, they have proposed a draft rule that would weaken the regulator’s ability to control price increases. They have chosen instead to give gas network businesses the benefit of the doubt on how fast gas prices rise, shifting power away from the regulator and toward businesses that are asking consumers to pay more, faster. That’s not consumer protection—it leaves consumers more exposed to the risk this rule change was meant to address.
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“Networks have already sought to bring forward almost a billion dollars in cost recovery from consumers in recent years, with the regulator approving about half of this. Under the draft decision, the regulator’s ability to manage price impacts would be much more limited, with the AEMC instead putting its faith in gas networks to price reasonably.
“While we welcome some aspects of the AEMC’s draft decision, such as the new rules to restrict unnecessary network spending, much more must be done to support households and small businesses as gas networks decline.
“Without significant changes, consumers will continue to be the default funders of the energy transition and bear an overwhelming and unfair share of the costs and risks. The AEMC has an opportunity to change course and put the interests of consumers first in its final decision in December.”
