The decision to have a single energy operator for both the gas and electricity industries is part of a series of reforms designed to enhance productivity and the efficient functioning of markets.
Why it should go ahead
Since the establishment of the Australian Energy Market Commission and Australian Energy Regulator, which will eventually regulate most aspects of the generation, transmission, distribution and retailing of energy, electricity and gas – and particularly the regulation of each industry – have become increasingly intertwined.
And given the growing dual role of gas, both in the generation of electricity and as an end fuel, a single market operator will hopefully be in a better position to plan the market and networks to take account of this.
Impacts on retail
In terms of retail price regulation, the plan is to review the competitiveness of energy markets generally, with a view to the phasing out of price regulation where effective competition exists.
From there, one of the specific functions for NEMO will be overseeing the day to day operation and administration of the electricity wholesale spot market in the National Electricity Market.
NEMO will also assume responsibility for establishing the planned Gas Market Operator, which would subsume the gas market functions of VENCorp, the Gas Market Company and Retail Energy Market Company (REMCo), and have responsibility for the operation of a bulletin board and short term trading market for gas.
Consideration is also being made as to whether WA will be a part of NEMO.
REMCo operates the gas market in WA and the electricity market is operated by the Independent Market Operator. While there would be clear synergies in WA being covered on the gas side with the merging of REMCo, there are far fewer benefits in incorporating WA’s electricity market operator, as the WA electricity market is fundamentally different.
From a retail perspective, it is important that the bringing together of all the market operators takes place in an efficient way which does not compromise system security and interrupts the millions of dollars flowing through the markets each day.
Retailers also need appropriate representation inside NEMO, including through board positions. It is also important that the fundamental differences between the way in which gas and electricity markets operate – such as the fact that gas can be stored, is a less integrated market, and operates on bilateral contracts – must also be taken into consideration in the establishment of NEMO.
Just as there was in electricity, there will be benefits in adopting a national approach to gas operations and regulation – for example through the establishment of a Short Term Trading Market and a Bulletin Board, trade in gas and the transparency of the market.
From here, the Ministerial Council on Energy will develop, in consultation with stakeholders, a detailed implementation plan by the end of 2007.