Australian Energy Regulator clamps down on network charges

Customers could have lower bills as the energy regulator clamps down on network charges.
Customers could have lower bills as the energy regulator clamps down on network charges.

More than $210 could be shaved off the annual electricity bill for NSW households, and $360 for small businesses, says the energy regulator, if its proposed price restrictions go ahead next year.

On Thursday, the Australian Energy Regulator announced its draft decisions on planned spending of NSW electricity distributors, slashing their proposed operating and expenditure costs for 2014-19 by more than a third.

It aims to restrict what Ausgrid, Endeavour Energy and Essential Energy – responsible for poles and wires that transport power across the state – can charge customers to recoup network upgrade and maintenance costs.

Ausgrid's revenue from consumers could drop by 35 per cent to $6.5 billion, savings its customers $189 a year on their annual bill.

Endeavour Energy proposed revenue could be reduced to $3 billion, saving its customers $159 a year. And Essential Energy customers could enjoy a big saving of $346 in 2015-16.

"Our draft decisions propose lower allowed revenues for transferring electricity and gas, which, if implemented, should result in lower energy bills for end users in the ACT and NSW," AER chairwoman Paula Conboy said.

"These reductions would be followed by small increases in each of the three subsequent years [in line with the yearly Consumer Price Index]."

Network charges on bills have inflated with extravagant spending – or "gold-plating" on poles and wires – in recent years and now account for 50 per cent of an energy bill issued to NSW users. The charge  makes up just 30 per cent of bills in Victoria.

But the industry says what may seem like a win for consumers, is actually a loss in the long run.

Energy Networks Association head John Bradley said the "unsustainable" spending cuts could compromise reliability, safety and efficiency outcomes for customers.

"If implemented, these funding cuts put at risk key consumer outcomes relating to safety, maintenance and outage response times," he said.

"Consumers end up paying more under this kind of 'roller-coaster' regulation where underspending is followed by higher cost catch-up spending and political intervention."

The Electrical Trades Union and United Services Union also joined the chorus of protest, saying the AER's proposal would increase blackouts, reduce safety and lead to extensive job losses.

"Blackouts will be more likely on the hottest and coldest days, as power demand surges, reconnections will be slower following natural disasters, bushfire risks are likely to increase, and the safety of workers and the public will be put at risk,"  ETU NSW secretary Steve Butler said.

"The last thing we want is for the people of NSW to end up with poorer services and reduced safety because the Federal Government's energy regulator imposes unsustainable cuts to our electricity network," said USU energy manager Scott McNamara.

But Gabrielle Kuiper, senior policy officer at the Public Interest Advocacy Centre, said the AER's draft decisions were welcome news to the increasing number of NSW families struggling to stay on top of soaring energy costs.

The regulator revealed this week that almost 33,000 households in NSW had lost their power supply in 2013-14 because of unpaid bills as energy costs escalated – twice the number five years ago.

Dr Kuiper also said there was room for improvement in regards to the allowed rate of return – the forecast of the cost of funds a network business requires to attract investment in the network.

The AER has dropped it from 10 to 7.15 per cent, saying it reflected lower interest rates and improved financial market conditions.

"We will be requesting the regulator to look at reducing the rate of return, because 70 per cent of the costs for consumers in some way is related in some way back to that."

In a separate announcement, the Australian Energy Market Commission said new pricing rules will begin on December 1 that would  save households up to $145 a year.

Families will pay bills that more closely reflect the way they use electricity. Those who use power steadily through the day will see immediate benefits.

"By having prices that reflect the costs of different patterns of consumption, we are giving consumers clearer choices as we develop a more efficient, incentive-based network regulation framework," AEMC Chairman John Pierce said .

Oliver Derum, another senior policy officer at the Public Interest Advocacy Centre, said energy prices could drop even further if previous over-investment by the networks is written down by the NSW government before the proposed lease of the networks.

"That could cut bills further by hundreds of dollars a year. We would urge the NSW government to consider this option as part of the sale process," he said.

The AER's final decision will be released in April, and the new rates will apply from July.

It undertook extensive benchmarking work that found that NSW businesses are less efficient than their counterparts in Victoria and South Australia.

AER chairwoman Paula Conboy encouraged consumers to take part in the consultation process by making submissions via the AER website.

"We want customers to get involved, that customers have their say in the bills that they are paying for," she said. "Energy customers should shop around for the best deal to suit their needs, using our website"

This story Australian Energy Regulator clamps down on network charges first appeared on The Sydney Morning Herald.