This submission responds to the Australian Energy Regulator’s (AER) preliminary framework and approach paper regarding price regulation for the three NSW electricity distribution network service providers (DNSPs), from 2014-15 to 2018-19. PIAC’s comments in the submission centred which method of price control the AER should employ to regulate Standard Control Services (which constitute the vast majority of DNSP services). PIAC considers both a weighted average price cap (WAPC) and revenue cap approach, assessing each in terms of: the outcome they seek to achieve; whether the burden of risk for changes in consumption is carried by consumers or DNSPs; and the timing and magnitude of price fluctuations within the regulatory control period. PIAC concludes that the method of control for Standard Control Services should be chosen based on certain principles, including: limiting the potential for DNSPs to recover revenue above efficient costs; and facilitating more gradual price adjustments from year to year, rather than large jumps every five years. PIAC argues that beneficial outcomes for consumers in these areas are more likely under a revenue cap. However, if the same results can be achieved under WAPC, PIAC would be open to the possibility of supporting such an approach.
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