Regulator must reject proposals for electricity network price rises

The Australian Energy Regulator (AER) should reduce electricity prices for NSW consumers by
rejecting the NSW network businesses’ revised revenue proposals, according to the Public Interest
Advocacy Centre (PIAC).

‘Consumer demand for electricity is reducing, interest rates are falling and there has already been
over-investment in the electricity networks. The proposals by NSW network businesses for capital
expenditure
, operating expenditure and rate of return are at odds with these changes,’ said Oliver
Derum, Senior Policy Officer in PIAC’s Energy + Water Consumer Advocacy Program.

PIAC is disappointed the proposals from Ausgrid, Endeavour Energy and Essential Energy show
only small reductions in expenditure and the rate of return compared to the very high levels of
expenditure in the past period. The proposals appear to be designed to ‘lock in’ the excessive cost
structures, profit levels and high prices of the past.

‘The AER’s position on capital expenditure, operating expenditure and rate of return are in the
long-term interests of consumers. PIAC considers that the AER has rightly focused on the “big
picture” in terms of the outcomes for consumers, in a way that takes account of the changes in the
industry and its environment,’ Mr Derum said.

‘If the AER sticks to its draft decision, network expenditure levels will return to the more “normal”
levels of expenditure that we saw before the recent extreme surge in expenditure on electricity
network infrastructure that drove up network prices. Infrastructure and operational costs must be
kept in check because electricity consumers pay for these costs in their power bills.’

PIAC supports the efforts of the AER to address the chronic lack of productivity in the NSW
networks. PIAC also believes there is no case for returning to the high levels of expenditure in
2009-14, and that expenditure needs to return to more normal ‘steady-state’ levels.

PIAC considers the claim by the network businesses that 8.85% is the minimum efficient financing
costs for an electricity network is unfounded. A number of comparable networks were allowed a
lower return and are still forecasting profit growth. In PIAC’s view, the AER must reduce the
allowance for aspects of the weighted-average cost of capital; there is no reason why NSW
consumers should pay for higher financing costs than consumers in other states.

‘We believe the AER should go further in this area. Consumer groups are asking the AER to
examine reducing the rate of return from the draft level of 7.15%,’ said Mr Derum.

MEDIA CONTACT: PIAC Senior Policy Officer, Oliver Derum: 0422 946 901. 

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