The Commission made a price determination relating to the gas Retail Market Administration services performed by REMCo (now AEMO). The Commission has adopted a relatively light handed form of regulation to REMCo, which is based on price monitoring that is supported by pricing principles.
The Price Determination applies from 28 July 2004 and will expire on 30 June 2009.
As a result of the introduction of full retail contestability in the South Australian gas industry, a Retail Market Administrator (RMA) was established to administer the framework for transactions between gas retailers and distributors operating in the competitive gas retail market.
Gas market participants in South Australia and Western Australia have established Retail Energy Market Company Ltd (REMCo) to be the RMA for the contestable retail gas markets of both states. In accordance with the Gas Act 1997, the Commission licensed REMCo to operate as the RMA in South Australia.
REMCo operates on a cost recovery basis; with revenue generated from fees levied on members (note that REMCo’s RMA functions in relation to the SA gas market were transferred to the Australian Energy Market Operator (AEMO) from 1 October 2009).
Section 33(1)(c) of the Gas Act 1997 states that the Commission may make a price determination to regulate the prices charged by the RMA. Deciding the form of price regulation is typically one of the first stages in making a price determination. The form of price regulation governs the way in which the regulated business can set its prices in respect of the services it provides.
The Commission released a Discussion Paper outlining the issues relating to deciding the appropriate form of price regulation that the Commission should apply to REMCo for providing services to market participants as the RMA in South Australia.
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Submissions were received but not published.
In November 2003, the Commission released its preliminary view on the form of regulation to be applied to REMCo in the light of the submission received to the discussion paper. The preliminary view was intended to provide REMCo with a degree of certainty regarding the proposed form of regulation that will apply.
In March 2004, the Commission released its draft price determination, setting out the form of regulation that is to apply to REMCo’s RMA services, and the associated prices. The Commission opted to apply a relatively light handed form of regulation to REMCo, which is based on price monitoring that is supported by pricing principles. This light handed regulatory form recognises the limited potential that REMCo has to misuse any market power that it might have.
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Following the release of the March 2004 Draft Price Determination, the Minister for Energy issued a notice to the Commission under the Gas Act 1997 requiring the Commission to consider certain factors in making its price determination for REMCo. In particular, the notice requires the Commission to take into consideration that a proportion of REMCo's prudent costs might be met by a Government appropriation.
The Commission therefore considers it appropriate to re-issue its draft price determination taking into account this Ministerial direction.
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The Commission received one submission on the Draft Price Determination.
Submissions
The Commission has released its final price determination for REMCo operating as a gas retail market administrator in South Australia. This includes the form of regulation that will apply to REMCo and the maximum prices that REMCo can charge market participants to recover its costs.
The Price Determination will apply from 28 July 2004 to 30 June 2009.
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In its July 2004 Price Determination, the Commission flagged that it would conduct a review of updated financial information from REMCo, to assess whether:
- prices complied with the pricing principles; and
- to replace or vary the initial price determination.
The updated financial information became available as REMCo moved from its establishment and set-up phase into its operational phase. As a result, actual cost data began to emerge, replacing what had been predominantly forecasts of expected costs.
The Commission has assessed the updated financial information from REMCo, including further information REMCo provided in February 2005 in a submission on the draft price determination (released 20 December 2004). This was the only submission received.
The Commission has decided to make this subsequent price determination.
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