The submission emphasises the importance of balancing trade-offs like WACC impacts and regulatory stability while advocating for a stronger focus on consumer outcomes. MCC also highlights the need for innovative pricing reforms and practical, phased implementation strategies.
In this publication, MCC presents strategic insights on the AEMC’s draft ToR for electricity pricing reviews. With a focus on consumer outcomes, MCC emphasises balancing trade-offs, strengthening the focus on vulnerable consumers, and integrating technology with pricing reforms. The submission calls for a phased implementation approach and stronger retailer obligations to enhance consumer benefits, urging the AEMC to prioritise practical, consumer-driven solutions.
It is our pleasure to introduce MCC Economics and Finance (MCC). We are an international advisory firm specialising in economic regulatory frameworks. Our experience spans multiple jurisdictions and sectors, but we have a particular passion for energy issues.
Given our interest and experience in the space we offer a few suggestions on the AEMC’s draft terms of reference (ToR).
Pricing reviews face difficult trade-offs, including:
For example, in the UK, years were spent analysing pricing changes, only to become stuck on the fact that the changes would create uncertainty and take years to implement, e.g. 5 years. A long period of uncertainty, like 5 years, is enough to derail progress, even if the benefits of pricing changes are worth billions of dollars/carbon-units.
The ToR is consistent with these trade-offs.
But we wanted to emphasise these as directly and as early as possible to help you plan ahead.
Drawing on our international experience, we think there is much to be gained for consumers from better pricing in energy and we see key enablers for future success.
The Australian energy system has been resilient to changing patterns of supply and demand, but this resilience is under increasing pressure. On the supply side the proportion of intermittent generation is increasing. On the demand side there is a shift from gas to electricity and the proportion of electric vehicles is increasing. Better electricity prices can help manage these trends.
The words “consumer” and “consumers” appear 50 times in the space of 6 pages in the draft ToR. The word “customer” appears another 7 times. We think it is important that the AEMC has signalled the centrality of consumers so strongly.
However, we think the focus on consumers could be strengthened even further. The current title of the review leads with electricity pricing. We think a better title would be “Enhancing consumer outcomes through better electricity prices”. This would signal that electricity prices are the servant of consumers rather than an end in themselves.
We also think more could be done to signal that the review is seeking the best interests of all consumers. For example, there is no mention of vulnerable consumers and the special accommodations and protections that may be needed to support them.
Pricing reform in electricity has a bad reputation. It is commonly seen as a mechanism for punishing consumers, for example, the sun tax. This need not be the case. The ToR rightly place a strong emphasis on benefits and rewards. We suggest this could be strengthened by exploring innovative approaches to delivering benefits to all consumers. It is also worth considering whether it is possible to have an outcome where no consumer is worse off.
Our analysis is that pricing in combination with technology will result in far superior outcomes. While this is recognised in the ToR, we think this complementarity would benefit from greater emphasis. For example, off-peak prices for hot water and pool pumps are facilitated by load control and the technology to enable control. There is great risk and much reward to be gained from technology and standards that will allow electric vehicle charging to support the energy system.
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