In the lead-up to the commencement of the second regulatory control period (the five-year period commencing 1 July 2004), the Code requires the Commission as regulator - in consultation with interested parties - to review the price regulation methodology used in the first regulatory control period with a view to modifying the methodology as appropriate. The Commission refers to this review and consideration of the price regulation methodology to apply from 1 July 2004 as the '2004 Regulatory Reset'.

Price regulation methodology involves the practical and technical detail for the administration of price regulation over which the Commission as regulator has a degree of discretion. Accordingly, the Commission undertook this review in two stages - Stage 1 focused on methodology issues, while stage 2 considered the issues that arise from implementation of the preferred methodologies.

In February 2004, the Commission released its Final Determination of parameters necessary to give practical effect to its methodology decision.


Matters consequential to 2004 Regulatory Reset

In the 2004 Regulatory Reset, provision was made for a once-off adjustment to the value of the network price cap if it was found that a material error had been made in the regulatory asset values used in the Reset price cap formula.  

Network Tariff Pricing Principles and Methods

The Code assigns responsibility for determining the pricing structure that best gives effect to the pricing objectives of the Code to the network provider. Prior to the commencement of each regulatory control period, the network provider must provide the regulator with a draft statement setting out the details of principles and methods to be used for defining individual standard network access services to be supplied by the network provider and for establishing the reference tariffs to apply to those services. The regulator must approve the statement for use by the network provider unless, in the opinion of the regulator, the statement is not consistent with the principles and objectives set out in the Code.

In light of Power and Water Corporation’s decision not to change the tariff structures in the 2004-05 year, the Commission approved the 2004-05 tariffs against the existing approved Pricing Principles Statement (approved on 25 August 2000). The Commission considered this appropriate given Power and Water Corporation's stated intention to more fully consider changes to the structure of network tariffs over the coming 12 months, with revised pricing ‘principles and methods’ to be developed in conjunction with this process.

The Commission advised that it would only approve any changes to the structure of Power and Water Corporation’s network access tariffs once a revised Pricing Principles and Methods Statement is approved and that a revised Statement will be approved if it provides a rigorous and transparent basis for any rebalancing associated with the move to the price cap form of price control.

Pursuant to clause 75(S) of the Code, in October 2005, Power and Water Corporation submitted a revised Draft Pricing Principles Statement to the Commission for approval.

Following a period of public consultation, the Commission approved the Pricing Principles Statement for use by Power and Water Corporation during the second regulatory control period.

Network Tariffs

The Commission decided to adopt a price cap form of regulation based upon a tariff basket in the second regulatory control period rather than continue with the revenue cap approach used in the first regulatory control period. Hence, the Commission’s price regulation was based on a calculation of each year’s weighted average network access tariffs.


Non-Standard Tariffs

The network tariff pricing principles and methods have been used to set the approved tariffs for standard customer supply situations where the network capacity, pattern and level of customer demand, and security of service are of appropriate standard, well known, and easily measured. The standard tariffs are not directly applicable where the energy carriage differs markedly from where a customer taking its full requirements through the network.

In addition, the Commission recognised that in some, albeit rare, circumstances, discounting of network tariffs may be appropriate and can be beneficial to the market as a whole.

The Commission approved the use of the following frameworks in any future negotiations with embedded generators and the like, or where discounting of network tariffs may be appropriate.