Below is an explanation of how Tasmanian electricity prices are determined.
How are Tasmanian electricity prices determined?
Tasmanian customers may receive their electricity supply under either a standard retail (standing offer) contract or a market retail contract. Aurora Energy (as a Regulated Offer Retailer) is the only retailer required to offer standard retail contracts.
Tasmanian standing offer electricity prices are determined on the basis of a 'building block' approach.
Under a building block approach, the various costs that make up the total cost of supplying electricity to customers are added together to arrive at a maximum revenue figure, the Notional Maximum Revenue or NMR.
The NMR reflects only those costs the Tasmanian Economic Regulator, a body independent from the Government, considers an efficient electricity retailer would incur in supplying electricity to its regulated customers ie costs that the Economic Regulator considers an efficient operator would not incur are excluded from the NMR calculation.
Once the Economic Regulator has determined the NMR, the retailer is required to submit a pricing proposal for the Economic Regulator's approval. The pricing proposal outlines the various prices and the proposed split between fixed and usage charges for each tariff. The Economic Regulator reviews the pricing proposal and after, ensuring that it complies with the determination of the NMR, approves the electricity prices. Most importantly, when added together, the revenue expected to be derived from each tariff based on the number of customers multiplied by the amount of electricity expected to be consumed must not exceed the NMR
What is a price determination?
A price determination is a document that outlines the method for
determining the prices a Regulated Offer Retailer can charge for the supply of
electricity for each year of a regulatory period. Before making a price
determination the Tasmanian Economic Regulator is required by legislation to
conduct an investigation.
What is a regulatory period?
A regulatory period is the time period during which the Regulator's
price determination applies.
What is a price determination investigation?
A price determination investigation is a process conducted by the
Tasmanian Economic Regulator to gather information so that it can determine
prices that reflect a regulated entity's efficient operating costs. Typically,
an investigation involves the regulated entity submitting information requested
by the Economic Regulator together with the Economic Regulator conducting
public consultation as well as its own research and benchmarking and, where
necessary, seeking expert advice from independent consultants. The costs of a
price determination investigation are met by the entity the investigation
What is an annual price approval?
Following the completion of a price determination investigation and the
Tasmanian Economic Regulator's making of its price determination, the Regulated
Offer Retailer is required to submit an annual pricing proposal setting out the
services it intends providing and the prices it intends charging for those
services. After confirming that the proposed prices comply with the
requirements set out in the price determination and final investigation report,
the Economic Regulator approves the prices that are to apply for the coming
What are standing offer prices?
Standing offer (or regulated) prices are the prices that a Regulated
Offer Retailer (currently only Aurora Energy) may charge small customers on
mainland Tasmania (including Bruny Island) for services provided under standard
Who are small customers?
Small electricity customers are defined as all residential customers on
mainland Tasmania (including Bruny Island) as well as those small business
customers who use less than 150 megawatt hours (MWh) of electricity per year.
Who does what in supplying electricity to my house or business?
Generation - In Tasmania, most of the electricity is supplied by Hydro Tasmania's hydro-electric power stations. Energy needs are also met through the Woolnorth, Studland Bay, Musselroe Bay, Granville Harbour and the Wild Cattle Hill wind farms as well as from interstate generators via the Basslink undersea electricity cable and the Tamar Valley gas fired power station.
A retailer buys electricity from generators on behalf of its customers. Legislation, regulations and other regulatory instruments set out how the Tasmanian Economic Regulator is to estimate wholesale electricity costs.
Transmission and Distribution - TasNetworks is a Tasmanian Government-owned business that owns the large transmission towers and lines that transmit electricity from generators to population centres. TasNetworks is also responsible for the poles and wires that distribute power around mainland Tasmania to towns, cities and rural areas.
The national Australian Energy Regulator sets the prices that customers pay to use this network.
In setting network prices, the AER estimates the costs involved in transporting electricity across the networks. Each year, when the actual costs are known, the transmission and distribution prices are adjusted to take account of these actual costs. These network costs usually change on 1 July each year.
Retailing - All mainland Tasmanian customers are able to choose their retailer. Every small customer is also assigned a 'Regulated Offer Retailer' that is required to make an offer to supply electricity to that customer under its standard retail contract at standing offer prices, which are approved by the Tasmanian Economic Regulator. Aurora Energy is currently the Regulated Offer Retailer for all small customers on mainland Tasmania (including Bruny Island).
The Tasmanian Economic Regulator determines the maximum amount that you should pay for these retail services which includes billing, account management, call centre costs, a retail margin and the costs of retaining existing customers and attracting new customers. The retail margin compensates a Regulated Offer Retailer for the risks it takes in investing in the business and in providing electricity services to standing offer customers.
Which costs are taken into account in determining the standing offer price?
The standing offer price for electricity takes into account generation costs, transmission and distribution (network) costs, metering costs and retailing costs together with the costs of participating in the National Energy Market (NEM) and the retailer's costs of complying with the Australian Government's Renewable Energy Target (RET) schemes.
Cost components of a typical electricity bill, 2022-23
Source: Aurora Energy, Pricing Proposal for Period 1 of the 2022 Standing Offer Price Determination 1 July 2022 – 30 June 2023
How much discretion does the Tasmanian Economic Regulator have in setting Tasmanian electricity prices?
Whilst the Tasmanian Economic Regulator approves standing offer prices it does not have discretion to determine the majority of the costs that contribute to those prices.
For one, network charges which comprise around 38 per cent of total costs are regulated by the Australian Energy Regulator, an independent national body.
Secondly, generation costs make up around 35 per cent of total costs. The Wholesale Electricity Price (WEP) is the main component of these costs. The WEP is calculated by the Tasmanian Economic Regulator in accordance with the results produced by a wholesale pricing model that complies with the principles set out in the Wholesale Contract Regulatory Instrument and the methodology set out in the Regulator's annual price approval guideline.
Finally, National Energy Market participation charges, which are set by the Australian Energy Market Operator (AEMO), Metering costs and Renewable Energy Target costs comprise around 14 per cent of total costs.
As a result, the Tasmanian Economic Regulator has discretion with respect to determining around 12 per cent of the costs that contribute to the total cost of electricity
What does the Economic Regulator consider before approving retail service costs and retail margin?
In examining Aurora Energy's costs of providing services to its standing offer customers, the Tasmanian Economic Regulator ensures that households and small businesses only pay for costs that are associated with supplying them with electricity plus a fair share of Aurora Energy's overhead costs. This includes an examination of:
- how much, if any, customers should pay towards Aurora Energy's advertising and marketing costs;
- how Aurora Energy's operating costs compare to electricity retailers in other states and territories; and
- how much, if any, customers should be contributing to the cost of Aurora Energy's sponsorships (eg of Aurora Stadium) and other non-essential business services.
Why do we have regulators setting prices?
If regulators did not set the prices for monopoly services (such as those provided by TasNetworks) or for services in markets without adequate competition, consumers could be paying more and/or receive a lower level of service. By setting caps on the amount of revenue that can be earned by the regulated entity, the Australian Energy Regulator and the Tasmanian Economic Regulator seek to protect customers from the risk that these entities may misuse their market power and charge higher prices than they ought to due to the absence of adequate competition to prevent this type of behaviour.
The regulators ensure that you are paying prices that reflect efficient costs for the services and that these services are delivered to an appropriate standard.
The independence of these regulators from Government ensures that their pricing decisions are not inappropriately influenced by vested interests
How much does a typical Tasmanian residential customer pay for electricity?
The amount paid for electricity by a typical Tasmanian residential customer depends on the mix of prices that the customer receives their electricity supply under, their electricity usage and how much of their usage is split between heating, lighting and other uses.
The Tasmanian Economic Regulator produces regular reports comparing prices paid by both residential and business customers in Tasmania and in mainland jurisdictions. Copies are these reports are available here.
Are Tasmania's electricity bills for the average customer higher than those in other states?
Tasmanians generally use more electricity than their interstate counterparts (particularly for heating) due to the relatively cooler climate. Although it should be noted that mainland customers pay more for cooling. Additionally, in other states and territories, a higher proportion of customers have access to gas for cooking and heating which can mean that their electricity bills may be lower. However, these customers receive a gas bill in addition to an electricity bill.
Reports comparing prices paid by both residential and business customers in Tasmania and in mainland jurisdictions are available here.
How do I know what tariffs I am on?
The tariff or tariffs (prices) that apply to you are shown on your electricity bill.
Residential customers are able to choose from a range of different tariffs. Tariffs that have a flat charge are Tariff 31 (light and power) and Tariff 41 (hot water and heating). Whereas Tariff 93 (a time-of-use tariff) has peak and off-peak charges that vary depending on the time of the day and the day of the week. A small number of customers may also have Tariff 61 or Tariff 62 which provide off-peak heating.
For business customers, the type of business you are operating determines which tariff/s you are on. For example a farm may be connected to Tariff 22, the general business tariff. However, if the farm also operates irrigation pumps, it may also be connected to a special irrigation tariff. Dairy farms may also have a special hot water connection. Businesses that operate certain types of machinery may be connected under what are called "demand tariffs".
If you have any doubts about which tariff is right for your circumstances, you should talk to your retailer.
What are my options as a small customer?
Residential customers have several tariff options when buying electricity from Aurora Energy paying standing offer regulated prices on a standard retail contract. Options include time-of-use (peak and off-peak) and flat single-rate products.
Residential customers also have the choice of a market retail contract with another authorised retailer.
If you enter into a market retail contract with an authorised retailer, you have the option of changing back to a standard retail contract with Aurora Energy, at regulated prices. While you can terminate a market contract early, the retailer may charge you a fee for doing so.
Small business customers that consume less than 150 MWh per year can buy electricity from Aurora Energy either under a standard retail contract paying standing offer prices or under a market retail contract, or under a market retail contract with another authorised retailer.
What is aurora+?
aurora+ is an app that Aurora Energy customers can choose to use. The app provides customers with a range of additional online tools for checking their account balance, monitoring their usage information and paying their Aurora Energy account.
aurora+ can be paired with Aurora Energy's residential time-of-use tariff, Tariff 93, or with the residential flat rate, Tariff 31/41. You do not need to switch to a time-of-use product in order to use the aurora + app. However, it is necessary for an advanced meter to be installed. In exceptional circumstances, this may involve some costs for the customer.
More information is available here.
As a concession card holder, what discounts are available to me?
Residential customers who have a Pensioner Concession Card issued by Centrelink or the Department of Veterans Affairs, a Health Care Card issued by Centrelink, an Immigration Card or a Tasmanian Concessions Card (also known as a Community Detention Card) issued by the Department of Premier and Cabinet (DPAC) may apply for an electricity discount.
The Annual Electricity Concession provides a daily discount to eligible customers calculated on a cents per day rate.
All electricity retailers operating in the Tasmanian market must provide electricity concessions to eligible customers including the Life Support Discount, Heating Allowance, Medical Cooling Rebate and other essential discounts as stipulated by the Government.
Further information on electricity concessions, including eligibility requirements, is available from www.concessions.tas.gov.au.
As a standing offer customer am I paying for Aurora Energy's costs of providing staff discounts?
No, the Tasmanian Economic Regulator does not allow Aurora Energy to charge standing offer customers for costs such as this ie these types of costs are not considered to be costs an efficient operator would incur.
As a standing offer customer, will I have to pay more so that Aurora Energy is able to pay dividends?
No, the Tasmanian Economic Regulator's role is to ensure that you are paying a price that reflects Aurora Energy's efficient costs of providing retail services to you. Dividends play no part in the costs to supply you with electricity as they are paid out of net profits (ie revenue less expenses). While the Economic Regulator does approve an allowance for the retail cost to serve and for a retail margin, the amount available for dividend payments is a function of the returns achieved across the whole business and is a matter for Aurora Energy's Board and shareholders.
Who is responsible for street lighting prices?
TasNetworks operates and maintains most streetlights across Tasmania, predominantly on behalf of councils and the Department of State Growth. This includes TasNetworks-owned public lighting and private lighting in public spaces (ie lighting in public spaces maintained by TasNetworks at a customer's expense).
The AER sets the distribution component of the price which comprises the network charges and the operational, maintenance and capital costs of public lighting assets. The retail component is based on the wholesale energy cost component estimated during the Economic Regulator's standing offer price determination investigations.
TasNetworks Public Lighting Services Application and Price Guide is available from TasNetworks' Distribution fees and tariffs webpage.
What are my options as a small customer?
If you have a question that is not included above please email details to: email@example.com.