The opening act:

This submission responded to the pricing proposals submitted by the three NSW electricity distribution networks (DNSPs) (Essential Energy, Endeavour Energy and Ausgrid) to the Australian Energy Regulator (AER). The proposals cover the year 2014/15, the first year of the five-year regulatory period from 1 July 2014 to 30 June 2019. The transitional year was introduced to allow DNSPs more time to develop full proposals that have regard to the Guidelines for economic regulation of networks developed by the AER as part of its Better Regulation program. In the submission, PIAC noted that the transitional year serves as a placeholder, and that prices would be ‘trued up’ against the allowed DNSP revenue for the five year period. However, PIAC also noted a number of concerns related to the approaches adopted by DNSPs in their Regulatory Proposals for the Transitional Year. In particular, PIAC highlighted that the DNSPs had chosen to calculate their weighted average cost of capital, a major component of final bills, in a manner that would deliver higher bills for consumers than would be the case if they had followed the relevant AER Guideline. PIAC also raised concerns about the DNSP proposal to charge higher prices in 2014/15 to allow for ‘smoothing’ of future expected price rises, when these prices might not actually eventuate. Finally, PIAC noted that there was a danger that the cap on DNSP price rises of no higher than the rate of inflation would act as a target as much as a cap.