15 Jun 2012 Electricity
The Commission has reviewed AGL South Australia Pty Ltd's (AGL SA) application which asks for the tolerance band, a part of the Commission's Relative Price Movement (RPM) methodology, to be increased due to a material change in ETSA Utilities' network costs and the introduction of a carbon price under the Australian Federal Government's Clean Energy Act.
The tolerance band enforces a maximum and minimum price that for the standing contract price must remain within. However, where "special circumstances" exist, the tolerance band can be adjusted in a manner that reflects the outcome of that special circumstances review. The Commission, in its statement of regulatory intent, decided that special circumstances do exist due to the introduction of the carbon price and a review should be conducted to decide if the tolerance band should be adjusted to reflect these circumstances.
As part of the review, the Commission has examined the impact of ETSA Utilities' network prices for 2012/13 which were approved by the AER. The Commission treats network costs incurred by retailers as a pass through into the standing contract price. The approved network prices impose an increase of approximately 26% to network costs, mostly to reflect the payments made by ETSA Utilities for energy exported by rooftop photovoltaic (PV) generators. The Commission’s tolerance band for 2012, determined its 2010 standing contract price determination, was based on a forecast network price increase of around 14%.
The Commission has reviewed AGL SA's application for the tolerance band to reflect the introduction of a carbon price. Given the uncertainty over carbon prices at the time, the tolerance band, which was set in 2010, did not include an allowance for a carbon price. AGL SA submitted that the carbon price would require a $27.27 per MWh increase in the cap. However, the Commission has not accepted all of AGL SA's arguments and has determined that the cap should increase by $13.96 per MWh to reflect the impact of the carbon price.
The Commission considers that it is important to pass on the costs incurred by electricity retailers as a result of the carbon price. If the Commission does not allow for any pass through of carbon costs, the electricity standing contract price may be lower than the cost of providing retail services, which would have the potential to inhibit future investment in the electricity industry and threaten the delivery of electricity services in the long-term.
After incorporating the impacts of the carbon price and the proposed increase in network tariffs the RPM tolerance band floor for 2012/13 has been determined to increase to $310.21 per MWh and the cap increase to $335.27 per MWh (or 18%).
As previously noted, the tolerance band determines only a maximum and minimum price that the standing contract can move between. The decision as to how much the current standing contract price increases by each year is determined by the RPM methodology. More information regarding the RPM methodology and electricity prices from 1 July 2012 is available at 1 July 2012 Electricity Standing Contract Price Adjustment Project.
2012 AGL Application for Special Circumstances Review