AER decision will reduce cost of Victorian electricity transmission

The Australian Energy Regulator has issued its final decision on SP AusNet’s revenue proposal for the three year regulatory period commencing 1 April 2014.

SP AusNet is the principal electricity transmission network service provider in Victoria. The AER’s final decision sets the maximum revenue that SP AusNet can recover from its customers via the transmission network component of an electricity bill.

 “This decision will reduce electricity costs for Victorian consumers. For the average four-person Victorian household, their residential bill should fall by $4 per year and halt the past trend of increasing transmission charges,” AER Chairman Andrew Reeves said.

“The average business will see their bills fall by $16 per year.”

The total revenue that SP AusNet can recover from its consumers under this final decision is capped at $1600 million ($ nominal). The AER has applied this cap to ensure that SP AusNet recovers no more than its efficient costs.

The cost of capital for this decision is significantly less due to the lower interest rates and this has contributed to the lower revenue allowances compared to the last six years.

The AER estimates that average transmission charges in Victoria will be reduced by around five per cent per annum over the three year period. Transmission charges are approximately five per cent of a residential electricity bill in Victoria.

“The AER has pushed SP AusNet to focus on efficient spending and ensured that these efficiencies are returned to consumers via lower prices. This and the lower cost of capital is good news for Victorian customers.”

The final decision rejects $40 million or 7 per cent of SP AusNet’s proposed operating expenditure. The AER will allow only $560 million ($ 2013–14). If the AER had accepted the original operating expenditure proposal, Victorian consumers would have paid more than what SP AusNet required to efficiently manage its transmission network over a number of years.

The final decision also rejects $29 million or 5 per cent of SP AusNet’s proposed capital expenditure. The main driver of the total approved allowance of $513 million ($2013–14) is the rebuilding of major stations across Victoria.

The capital expenditure the AER has approved is needed to strengthen the electricity supply into Melbourne, including the redevelopment of the Richmond and West Melbourne terminal stations. They need to be rebuilt because of their age and condition. For example, the West Melbourne terminal station was built in the 1960s.

“While these replacements are necessary and will serve Victorian customers for several decades, the AER’s spending restrictions will prevent overspending from driving up prices for residential consumers,” Mr Reeves said.

The release of the AER’s final decision follows 11 months of extensive consultation with stakeholders.

Issued date: 
30 January 2014
AER reference: 
NR 002/14