The Australian Energy Regulator (AER) has issued preliminary decisions on the revenue proposals submitted by the Queensland electricity distribution businesses Energex and Ergon Energy for the five years starting on 1 July 2015.
The preliminary decisions propose the revenue amounts that these businesses can recover from customers. Up to 45 per cent of an average household’s energy bill can be attributed to the cost of delivering electricity through the distribution network.
“The AER’s preliminary decisions propose lower network charges for electricity distribution. This is expected to result in lower electricity bills for customers in Queensland,” AER board member Jim Cox said.
|Network business||Business proposal||AER preliminary decision||Percentage difference||Expected bill reduction for average household in total over 2015-20|
|Energex||$8432 million||$6528 million||- 23 per cent||$132|
|Ergon Energy||$8242 million||$6022 million||- 27 per cent||$132|
Note: Due to the Queensland Government uniform tariff policy, Ergon Energy’s revenue reduction will not flow through to its residential customers. Instead, the bill impact will mirror that of Energex.
“Through our Better Regulation program the AER has developed new guidelines and techniques, including improved benchmarking, to better forecast how much network businesses operating prudently and efficiently should need to spend,” Mr Cox said.
“Any costs above efficient levels will need to be funded by the network owners, not customers.”
“The demand for electricity has fallen and is expected to remain reasonably flat over the 2015 to 2020 regulatory control period. This puts less strain on the network and requires less investment to provide a reliable supply of energy. These preliminary decisions reduce the spending proposals to ensure that only prudent and efficient costs are recovered from consumers,” Mr Cox said.
“The AER has not accepted the revenue allowances proposed by Energex and Ergon Energy. In part, this is due to our decision to apply a lower rate of return and corporate tax allowance, consistent with our rate of return guideline and recent market trends.”
“The perceptions of risk which increased during the global financial crisis, when the AER made its last determination, are now decreasing. This means that the lower cost of capital for debt and equity translate into lower financing costs necessary to attract efficient investment,” Mr Cox said.
The AER has established an expert panel including consumer advocates to advise on how pricing proposals meet consumer expectations. The Consumer Challenge Panel (CCP) assists the AER to make better regulatory determinations by providing input on issues of importance to consumers.
“We have seen an unprecedented level of consumer engagement in the AER’s decision making process. On the whole, consumers have been saying to us that the levels of expenditure sought by the businesses are not sufficiently justified,” Mr Cox said.
Further information on the CCP and Better Regulation program can be found on the AER website. More detailed information for each of the preliminary decisions can be found in the separate fact sheets for each business.
The AER welcomes submissions from consumers on its preliminary decisions. Information on how to make a submission can be found on the Energex and Ergon Energy determinations.