The Australian Energy Market Commission (AEMC) has asked us to write a short paper describing the range of ideas that have been raised in recent thinking about the future of the building-blocks framework for energy network regulation, both in Australia and elsewhere. The context for the paper is the AEMC’s review of a Total Factor Productivity (TFP) option for setting prices as an alternative to the current building-blocks approach. During the AEMC process to date a number of interested parties have mentioned possible reforms other than the TFP option, or have identified potential problems with the current building-blocks approach which are not addressed by the TFP option. This is part of the motivation for our paper, the purpose of which is to stimulate and broaden the current discussion.
In writing this paper we have reviewed submissions to AEMC’s TFP review process to date, and we have also reviewed current thinking in the United Kingdom because the UK employs a similar building-blocks framework for energy network regulation. It is also clear that many of the topics currently being debated are not new, having been raised at various times during the evolution of the current framework in Australia. We have drawn on those discussions where appropriate.