Briefing Note | March 2021

How networks get paid

Key Points

The distribution (street poles and wires) and transmission (large volume, large distance) networks are effectively natural monopolies and so their main revenue sources are determined by the Australian Energy Regulator. 
Their income comes from consumers, who are charged a regulated fee for the use of their infrastructure. This fee is determined by the calculation of a revenue cap every five years, which is then sliced into annual charges and billed to consumers via retailers. 
The revenue cap is calculated every five years through a complex building block approach that estimates the efficient total costs of operating the shared network and then works backwards to determine and allocate costs. 
The regulatory process is complex and lengthy – it takes around two years to determine the revenue cap for each network’s five-year regulatory period. 
Stakeholder input – in particular from the network’s users, customers and their representatives – is strongly encouraged by the AER, but the complexity and duration of the process tends to result in limited stakeholder participation. 

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