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Technical report


Recent regulatory reform efforts in the Australian National Electricity Market (NEM) have included a number of rule changes aiming to contain electricity price rises driven by network investment by distributed network service providers (DNSPs). One focus area has been the economic inefficiencies of current network tariff arrangements, particularly for residential and small business consumers. These tariffs are typically shaped by limited metering capabilities and equity considerations and have generally involved a major volumetric consumption component. This tariff structure doesn’t clearly reflect the role of consumer contributions to network peak demand and hence in overall DNSP expenditure.

As part of the regulatory reform efforts, a distribution network pricing rule change has been implemented, effective for the current regulatory periods. The new rule requires that network tariffs should be more ‘cost reflective’, motivated by the idea that efficient prices will change consumer behaviour, which in turn will improve load factors, reduce network congestion and lower average costs for consumers. DNSPs are given considerable discretion over the specific implementation of the rule, which provides broad pricing principles only. The rule states that network tariffsshould be based on the long-run marginal costs (LRMC) of providing the service, and that the revenue to the network should reflect the efficient costs of providing the services to each consumer class. However, DNSPs are able to determine how to calculate their LRMC, how this is reflected in the tariff design and how residual costs should be collected. As DNSP tariff structures must balance efficient pricing considerations with fairness and the ability of consumers to understand and respond to the tariffs, there is considerable scope for a variety of tariff designs to emerge. In recent submissions, DNSPs have put forward a number of tariffs of varying structure and complexity. It is challenging to assess how each tariff will impact on different consumer groups, and how well they can provide efficient price signals and address existing cross-subsidy issues.

This document introduces the Tariff Design and Analysis (TDA) tool, developed by Centre for Energy and Environmental Markets (CEEM), at the University of New South Wales with support from the Australian PV Institute (APVI). The TDA project was supported by Energy Consumers Australia. The open source TDA tool aims to assist stakeholders, including consumer advocates and researchers, to investigate how different tariff structures impact on the expected bills of different types of residential consumers, while also estimating how well the tariffs align these customer bills with their impact on longer-term network costs. The tool builds on research and analysis currently being undertaken by CEEM and aims to support submissions to network pricing and tariff structure proposals

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