The Independent Competition and Regulatory Commission (ICRC) has released its final report into how it is to regulate retail electricity prices.
In its report, Review of the Retail Electricity Form of Price Control, ICRC said it would change its methodology for the network cost pass-through so it was consistent with the way the maximum allowed price change was calculated.
It said cost pass-through allows electricity network providers to recover unforeseen expenses after significant events from retailers in the following year’s prices which can lead to an increase in energy costs for consumers.
“The current practice of using different weighting methods for calculating the network cost change and the weighted average price change is inconsistent,” the ICRC said.
“Under the current method of calculating network costs, compositional changes affect both the change in average network costs calculated by ActewAGL and the revenue raised by ActewAGL—effectively ‘double counting’ the effects of compositional changes,” it said.
“This can result either in ActewAGL raising more revenue than it needs to recover its network costs or not enough revenue to recover its network costs.”
The ICRC said the revised calculation method would allow ActewAGL to recover its efficient costs, based on calculations for the hypothetical efficient retailer.
The Commission said it didn’t typically alter its regulatory methodology between price investigations, however it considered a timely resolution of the issue necessary.
“The distortion caused by the inconsistency between the calculation methods results in inaccurate estimates of network costs, which affects the accuracy of our determination of the maximum allowed average price increase for ActewAGL’s standing offer prices,” it said.
“For these reasons, we have concluded that it would be in the best interests of stakeholders if the calculation method were changed as part of the 2021-22 price recalibration.”
The ICRC said the change would be implemented during the current regulatory period (2020-2024) and would come into effect on 1 July.
The Commission’s 34-page report on its methodology, can be accessed at this PS News link.
