AEMC pricing review

farrierswier recently prepared an economic critique of the Australian Energy Market Commission’s (AEMC’s) June 2025 discussion paper for its electricity pricing review (the discussion paper) commissioned by Energy Networks Australia (ENA). The critique emphasises the need for stronger economic analysis and consideration of key factors influencing network tariffs. In sum we found: 

Anchoring assumptions need consistent application | The discussion paper presents two useful anchoring assumptions we support, but these are not consistently reflected in the issues and analysis discussed. 

Pricing does not need to target having all CER behave in a coordinated way to benefit the whole energy system | we agree, noting that: 

• network price signals can be important to the retailer value stacking needed to achieve price-based CER coordination 

• other (non-tariff) fit for purpose CER coordination levers are also important 

A spectrum of retail products ranging from basic to complex is needed | we agree, noting that: 

• the simplified book end is already provided for via retail regulations 

• it would be inappropriate to apply simplification measures in network tariffs as it would impede the efficient versions of complex book end retail offerings. 

Important threshold network pricing realities must be acknowledged 

• Currently the complex bookend cannot be made available to all customers due to metering constraints 

• Network pricing is necessarily dominated by the recovery of residual costs 

• Network pricing rules cover all NEM jurisdictions and all scales of electricity consumer  

• Network tariff efficiency cannot be robustly considered in isolation of connection contributions based on net incremental costs as required by NER chapter 5A 

• Network tariffs only need to be designed to address a subset of behavioural incentives  

• The AEMC’s review time horizon should align with its analysis and conclusions 

• Supply chain participants’ roles and capabilities must change to facilitate the energy transition 

We outline further solutions that could be considered in the review 

• Opportunities to change how residual network costs are recovered (discussed in section 5.1 of the paper) by separating the network access service and price from the network use service and price. This could reduce retailer variable cost exposure and improve retailer and customer agency, whilst enhancing network tariff cost reflectivity 

• Removing NER-based pricing distortions 

• Guidance for distribution network price designs for recovering transmission and jurisdictional scheme costs which are largely unavoidable for distributors. 

A copy of the farrierswier memo is available via this link.