AER re-examination of NSW and ACT electricity distributors shows customers benefiting from efficiency gains

The Australian Energy Regulator (AER) today released an issues paper seeking views on how to revise its decision on operating costs for NSW and ACT electricity distributors, following a Full Federal Court decision on the matter in May.

The issues paper will affect the operating expenditure for electricity distributors Ausgrid and Endeavour Energy in NSW and ActewAGL in the ACT for the 2014-19 period.

The AER’s original decisions in April 2015 proposed significant reductions to the businesses’ proposed operating costs. The difference in operating costs sought by the three businesses and the AER’s final decisions was $1064 million ($2013-14).

Since the AER’s determination, each network business has improved its operating efficiency and is moving towards the operating expenditure forecasts used by the AER in that 2015 determination.

Essential Energy, the remaining distributor in NSW, has advised the AER it will be submitting a revised proposal that is consistent with the AER’s original determination.

“This improvement in efficiency across the network businesses is a welcome development. If sustained, it will help ease pressure on bills for households and businesses in NSW and the ACT at a time when many are concerned about energy affordability,”

“Any reductions may take some time and there is an interim period where costs have been higher than forecast. There is a question as to who should pay those costs,” said AER Chair Paula Conboy.

The AER had originally decided that any costs above efficient levels should be funded by the network owners, not customers. The network businesses challenged this decision and the AER is now re-examining the matter.

Background

On 30 April 2015, the AER made final decisions on the determinations for the NSW and ACT electricity distributors for the 2014-19 regulatory control period. As part of these decisions, we did not accept each of the distributors’ proposed opex forecasts. Instead, we substituted our alternative opex forecasts. For most of the distributors, the difference between our alternative opex forecasts and distributors’ proposals was primarily due to the material inefficiency that we identified on the basis of the information available to us at the time.

On 17 July 2015, the distributors sought merits review of our final decisions, including our decisions for opex, by the Australian Competition Tribunal (Tribunal). The Public Interest Advocacy Centre also applied for review of our NSW final decisions. Additionally, the Commonwealth Minister for the Environment and Energy intervened.

On 26 February 2016, the Tribunal found that it was open to us not to accept the distributors’ opex forecasts, but had a number of concerns with how we derived our alternative opex forecasts. In particular, the Tribunal considered that we relied too heavily on the results of a single benchmarking model to derive our alternative opex forecasts.

On 24 March 2016, we applied to the Full Federal Court (Court) for judicial review of the Tribunal's decisions on opex, return on debt and the value of imputation credits.

On 24 May 2017, in its judicial review of the Tribunal's decision, the Court affirmed the Tribunal’s positions on opex and return on debt, but not the value of imputation credits.

Sector: 
Issued date: 
19 October 2017
AER reference: 
NR 31/17
Contact: 
AER Media 0466 409 921 media@aer.gov.au