ENERGEX and Ergon would develop the ability to remotely turn down customers' airconditioners and power in peak times, in a radical bid to reduce pressure on the system and lower electricity bills.
Under the proposed scheme, electricity distributors would be paid millions of dollars by the taxpayer-funded regulator to find ways to avoid spending money on building expensive power infrastructure.
Instead, they would use the "allowance" to invest in battery power and new technology, such as the ability to remotely turn down airconditioners and similar energy-intensive equipment during peak periods.
Australian Energy Regulator board member Jim Cox said replacing and building new transformers and lines was expensive, causing power prices to go up, but deferring or limiting this could lead to substantial savings.
"It's a way to manage customer demand rather than build new infrastructure," he said.
"It means there's less need for expensive upgrades of lines, and downward pressure on bills."
Mr Cox said the ability to turn down airconditioners was one option distributors could invest in.
Individual customers would have to agree to the remote-control power, with a reduction in electricity bills as an incentive.
"It would work in the same way that off-peak hot water works. It's something the customer would have to agree to do, and they would get a lower bill."
He said the power companies could also invest in battery storage so it could be drawn on in peak times to ease pressure on the grid.
An example given in the draft proposal would see the distributor receive an upfront payment of $5 million spread over five years, but the total payment would be capped at 1 per cent of their revenue.
To receive the cash, the distributor would have to submit a proposal demonstrating how it would lower customers' power prices.
Meanwhile, Prime Minister Malcolm Turnbull secured agreement from the bosses of the biggest energy retailers to write to about 1 million customers on lapsed discounted contracts to inform them about better deals by the end of the year.
Retailers will also investigate billing on a monthly, rather than quarterly, basis.
Written submissions regarding the AER's demand-management incentive scheme and innovation allowance are open until October 12, with a final scheme to be released in December.
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