What is a tariff?

A ‘tariff’ is how we charge a retailer for the services we provide our customers. The tariff can be made up of different charges such as a fixed charge, consumption/usage charge or demand charge.

The ‘tariff structure’ (or price structure) includes the tariff and tariff ‘components’, which together provide the additional information for retailers (and customers) to know how we will bill them for each customer.

The total network bill for a customer will depend on their network tariff and how the customer uses our network. The total bill the customer pays will be their retail bill, which will include the network bill, generation and transmission costs, jurisdictional costs (including any environmental levies), and the retailer’s own portion of the bill. The retailer can choose to pass on the distributor tariff structure and components, or use their own.

Each year, we publish our tariff schedule and, before we set prices, we must determine how to structure our tariffs.

We provide our tariff structures by customer segment:

• residential
• small business
• large business (combined low voltage, high voltage and sub-transmission tariff classes).
• A fixed (or ‘standing’) charge that applies to each premises that electricity is delivered to (in dollars per annum), and is charged on a pro-rata basis, depending on how frequently each customer is billed (usually monthly or quarterly).
• A consumption or usage charge tariff component – a charge that applies to the volume of electricity consumed (in cents per kilowatt hour (kWh)). For some customers, this charge may also depend on the time of the day the electricity is consumed.
• A demand charge tariff component – a charge that applies to either a customer’s electricity capacity requirement (in dollars per kilovolt-ampere (kVA)) or their maximum demand level (in dollars per kilowatt (kW)) depending on the type of customer.

For each customer segment we provide tariff structures and information on how we assign customers within that segment.

Typically, our tariff structures are made up of one or more of the following tariff components:

Tariff classes

In Figure 10 below, the five standard tariff classes in place for the 2021-26 regulatory period are shown on the right. Our five tariff classes correspond to our five major customer segments, which have materially different costs to connect and serve.

Tariff structure statement

As part of the regulatory proposal, Jemena is required to submit a Tariff Structure Statement (TSS) to explain our pricing and plans for the next regulatory period.

Our allowable revenue – established through the Australian Energy Regulator’s regulatory determination – is recovered through network tariffs charged to each customer’s electricity retailer.

The TSS sets out our applicable tariffs, expected price pathways and customer assignment policies over the course of the next regulatory period. It must also ensure that the proposed tariffs conform with pricing principles as outlined in the National Electricity Rules.

In addition to the TSS, Jemena is required submit an annual pricing proposal each year within the regulatory period to report on annual revenue recovery and the progress of tariff strategies.

This annual process is required to explain the actual annual revenue recovered from tariffs and account for differences from the charges outlined in the TSS (some of the differences include inflation, over/under-recoveries from prior years and incentive payments/rebates).

When we set pricing, we aim to meet the principles of cost-reflectivity, simplicity, economic efficiency, and adaptability. We also carefully consider the impacts of any changes on our customers.

How will tariffs change in the future?

Every price reset, we carefully consider the past, current and probable future circumstances of our network and our customers in establishing tariff structures. This is part of why our People’s Panel is such a vital part of our price reset: we can’t discover what our customers need without your help.

Our tariffs need to be fit for purpose, meaning that they meet the above pricing principles and don’t have undue negative impacts on our customers or other stakeholders. Keeping these in mind, and knowing some of the changes our network is undergoing, these might play out in the following ways:

Cost-reflectivity

• Most residential customers are not assigned to cost-reflective tariffs, although all new customers are automatically assigned to one. All customers could be moved to cost-reflective tariffs, to ensure each customer is paying fairly.

Simplicity

• Customers were previously offered a demand tariff that aimed to recover most revenue from a tariff component that penalised not energy consumption, but the rate of energy consumption during peak times. This is our most cost-reflective tariff but also the least simple to understand and the least simple to implement.
• Despite its cost-reflectivity, we could stop offering this tariff going forward, as it is very difficult for customers to respond to and retailers don’t find it simple enough.
• The network is incurring small but increasing costs to transport exported solar energy. Customers could be offered an optional tariff that will reward solar exports when the network needs them, and penalise exports when they could destabilise the network or incur extra costs for all network users. This will ensure we’re not accidentally sending incorrect pricing signals, e.g. by paying customers for electricity at a time when it costs us money for them to export this energy.

Economic efficiency

• The network is incurring small but increasing costs to transport exported solar energy. Customers could be offered an optional tariff that will reward solar exports when the network needs them, and penalise exports when they could destabilise the network or incur extra costs for all network users. This will ensure we’re not accidentally sending incorrect pricing signals, e.g. by paying customers for electricity at a time when it costs us money for them to export this energy.

Adaptability

• We can’t know for sure what technology our customers will have to store, produce or use electricity in the future. Our permanent tariffs are required to be technology-neutral, but we want to ensure that our tariffs remain appropriate for new technologies
• For this reason, we are currently running tariff trials for community batteries and considering a tariff trial next year for electric vehicles. If new technologies appear we will propose further trials. These will provide valuable information about how customers with these technologies react to tariffs, and let us continue to adapt our tariffs to apply to everyone in the future.

As can be gleaned from the above examples, the ongoing increase in Consumer Energy Resources (CER) is a key topic for the upcoming regulatory period.

We will act in the long-term economic interest of our customers, so we will never choose a path forward without consultation and careful consideration. We will discuss any potential changes to our tariffs with you throughout the course with you, including the above examples and any other ideas that may arise. We are open to new solutions, and want to make sure we’re considering all of our options while choosing the right path forward for our customers.