The Independent Competition and Regulatory Commission (ICRC) is to change the calculation method it uses to determine electricity charges half way through its 2020-2024 price investigation.
According to the Commission it “typically does not alter its regulatory methodology between price investigations,” but on this occasion it finds it necessary.
In its Draft Report – Review of the Retail Electricity Form of Price Control, the ICRC said it used a ‘form of price control’ to regulate retail electricity prices.
“During the price investigation, the Commission found that the 2020-2021 increase of 5.4 per cent in the network cost pass through for regulated tariffs was significantly higher than the Australian Energy Regulator (AER) approved network price increase of 2.0 per cent for Evoenergy’s corresponding regulated tariffs,” the ICRC said.
“The difference was caused by a change in the mix of network charges incurred by ActewAGL, which was caused by a change in the mix of consumers on standing offers,” it said.
The ICRC said the current practice of using different weighting methods for calculating the network cost change and the weighted average price change was inconsistent.
“The current method of calculating network costs results in compositional effects affecting both the change in average network costs calculated by ActewAGL and the revenue raised by ActewAGL—effectively ‘double-counting’ the effects of compositional changes,” the Commission said.
It said the current method, depending on the year, could result in ActewAGL raising more revenue than needed to recover its network costs, or not enough.
The ICRC said the revised method would allow ActewAGL to recover its costs, based on calculations for the hypothetical retailer.
“The Commission has concluded that it would be in the best interests of stakeholders if the calculation method were changed as part of the 2021-2022 price recalibration,” it said.
It said it would hold a workshop this month (March) for stakeholders to provide feedback on the draft decision.
The ICRC’s 34-page Draft Report can be accessed at this PS News link.
