Draft Report - Embedded Networks - December 2023

Our draft recommendations are that maximum gas and electricity prices should be set by benchmarking them to retail offers being advertised on the Australian Energy Regulator’s (AER) Energy Made Easy website. Our draft methodology proposes that the maximum prices for electricity and gas to be determined by the median of the lowest tariffs, fixed and consumption, of all active retailers. These would be updated six monthly. Our draft pricing methodologies for hot and chilled water would also be based on these prices. 

Our draft methodology for hot water maximum prices is based on the gas price benchmark. To ensure that customers are not penalised for inefficient systems, our draft methodology involves setting a standard for the efficiency of systems through the maximum price. Embedded network sellers would be able to charge customers in water units or the equivalent energy units. 

We found that chilled water is mainly used for the purposes of providing centralised air-conditioning. We consider that the issues faced by chilled water customers are likely to be faced more broadly by all customers being supplied and billed for separately for centralised air-conditioning. Therefore, we have made a draft recommendation that our price protections for chilled water customers be extended to protect all centralised air-conditioning customers.  

For chilled water, our draft recommendation is that sellers could continue to charge based on usage or a fixed daily rate. Where customers are billed for their electricity usage, sellers could not charge more than the benchmark electricity usage tariff. Where sellers bill using a fixed rate, our draft methodology uses the benchmark electricity tariff and a benchmark consumption level to set a maximum daily charge.  

In forming our draft recommendations, we applied our draft methodology to historical data sets of published offers to understand what the prices would have been relative to other offers in the market. You can find this data here.