The National Energy Market commenced operation in 1998. In 2004, the Council of Australian Governments (COAG) established a governance framework to oversee the National Energy Market. The governance framework provides for participating jurisdictions to develop and implement Australian Energy Market Legislation relating to electricity and gas, and includes three market institutions that are accountable to the COAG Energy Council.

The National Energy Market is comprised of wholesale electricity and gas markets, the transmission and distribution networks and the retail sector. The energy supply chain begins with electricity and gas being generated or produced to be sold in wholesale markets. Energy retailers buy gas and electricity in the wholesale markets, and then bundle it with transportation services of transmission and distribution networks to sell to end-use customers. The retail energy markets allow retailers to supply and sell electricity, gas and energy services to residential and business customers.

There is ongoing community, political and media interest in energy supply, particularly rising energy prices and their impact on Australian households and businesses. In regulating the energy sector, the AER makes decisions that can affect energy prices, security and reliability. The audit findings can provide lessons for more effective monitoring, reporting and enforcement of compliance with National Energy Laws, Rules and Regulations by the Australian Energy Regulator (AER).

Main findings:

• The Australian Energy Regulator (AER) has been a partially effective regulator of energy markets.
• The AER has partially appropriate governance arrangements to oversight its National Energy Market regulatory responsibilities. At the time of the audit, the AER was implementing a range of recommendations from previous reviews aimed at improving its governance, management and risk approaches.
• The AER has been partially effective in undertaking regulatory activities. It has supported market participants by providing extensive information to help them fulfil regulatory requirements, including through a range of reports on compliance and performance, hosting public registers, and conducting prescribed reviews and assessments.