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This submission draws on MCC Economics’ work in economic regulation and consultation analysis in many countries, with a particular focus on energy. It responds to the Australian Energy Market Commission’s (AEMC) review of electricity pricing, titled Electricity pricing for a consumer-driven future, at its opening stage: the draft terms of reference, the short document that sets out what the review will cover, published for public comment.
The AEMC’s electricity pricing review examines whether electricity pricing, products and services still serve Australian consumers well, in an energy system that is changing faster than the prices that govern it. The AEMC opened the review with a draft terms of reference published for public comment, and three trends drive the timing: the share of electricity from sources that vary with the weather (intermittent generation) is growing, demand is shifting from gas to electricity, and the proportion of electric vehicles is increasing. This submission is MCC’s response to that opening stage.
The pressure behind the review has built up over years rather than arrived suddenly. Australia’s energy system has been resilient to changing patterns of supply and demand, but that resilience is under increasing pressure from both directions at once, and better electricity prices can help manage these trends.
MCC’s view is that the review is timely and welcome. Drawing on its international experience, the firm sees much to be gained for consumers from better pricing in energy, and it sees the conditions for success already in place. Its support carries one consistent emphasis: the gains only arrive if the review is organised around consumers rather than around prices. Reviewing, however, is the straightforward part. The harder question is the set of balances any pricing review must strike, and MCC puts nine of them in front of the AEMC at the outset.
MCC identifies nine strategic trade-offs that pricing reviews face, listed directly and early so the AEMC can plan for them from the start.
Table 1: The nine trade-offs MCC identifies for electricity pricing reviews, and what each one balances.
The United Kingdom shows what happens when these balances are not struck. Years were spent analysing pricing changes, only for progress to stall on the fact that the changes would create uncertainty and take around five years to implement. A period of uncertainty that long is enough to derail reform even when the benefits are worth billions of dollars or carbon units. The draft terms of reference are consistent with these trade-offs; MCC’s point is to make them explicit while planning is still cheap.
Consumer outcomes should lead the AEMC’s pricing review because the Commission has already signalled that intent, and MCC argues it should go further. The words consumer and consumers appear 50 times in the six pages of the draft terms of reference, with customer appearing another seven times. MCC welcomes that emphasis and suggests making it explicit in the review’s name: a better title would be Enhancing consumer outcomes through better electricity prices, signalling that electricity prices are the servant of consumers rather than an end in themselves.
One gap stands out. The draft terms of reference make no mention of vulnerable consumers or the special support and protections they may need. MCC argues the review should signal that it seeks the best interests of all consumers, not only those well placed to respond to new prices.
Electricity pricing reform has a bad reputation because it is commonly seen as a way of punishing consumers, the so-called sun tax being one example. It does not have to be that way. The draft terms of reference rightly place a strong emphasis on benefits and rewards, and MCC suggests strengthening this by finding new ways to deliver benefits to all consumers, and by asking whether it is possible to reach an outcome where no consumer is worse off.
Pricing needs technology because, on MCC’s analysis, the two in combination produce far superior outcomes to pricing alone. Cheaper off-peak prices for hot water and pool pumps only work because technology can switch these appliances on and off automatically, known as load control. Electric vehicle charging carries both great risk and much reward: with the right technology and standards it can support the energy system. The draft terms of reference recognise that prices and technology work together, and MCC argues this deserves greater emphasis.
The same realism applies to how fast reform should move. The submission puts it plainly: 50 percent of something is better than 100 percent of nothing. It is not necessary for everyone to respond to price signals perfectly; enough people responding a bit delivers a high level of benefits. Given the considerable risk and community suspicion fuelled by high-profile policy disasters, MCC suggests the terms of reference signal a practical approach, for example introducing changes gradually over a long period.
Retail competition in Australia is not currently strong enough to be relied on to deliver the review’s benefits, in MCC’s assessment. Consumers receive better outcomes through competition than regulation where competition works properly, and much of this review’s benefit is likely to be delivered through the actions of retailers. But Australian retailers have demonstrated that they are not sufficiently motivated by the best interests of their customers: their use of the loyalty tax, charging loyal customers more than new ones, led to the introduction of default market offers, a regulated price safety net, and their slowness in rolling out smart meters led to compulsory targets. MCC’s view is that the outcomes of this review will likely require specific obligations on retailers, and that the AEMC should signal these requirements early. MCC made the same argument, about who has the real incentive to deliver, in its submission to the AEMC on accelerating smart meter deployment, which questioned whether retailers should lead that roll-out at all.
The submission responded to the review at its very first stage, the draft terms of reference published in July 2024. The review has since progressed through its consultation, discussion and draft report stages, and the AEMC published its final report in June 2026. The themes MCC raised at the outset, consumer outcomes leading the design, the loyalty tax, and gradual practical implementation, run through the questions the review went on to examine.
That the review is welcome and the prize for consumers is real. The test is design: if consumer outcomes lead, prices pair with technology, changes are introduced gradually and retailers carry clear obligations, electricity pricing reform can reward consumers rather than punish them. MCC would be pleased to assist as the work continues.
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MCC’s submission on Australia’s smart meter rollout: the trade-offs, protecting vulnerable consumers, and the case for networks to lead over retailers.
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