Consumer engagement drove JGN final decision: AER

The Australian Energy Regulator’s (AER) final decision on revenues for Jemena Gas Networks (JGN) is good news for NSW consumers concerned about affordability, with gas bills likely to fall for almost 1.4 million homes and businesses to which JGN distributes gas.

AER Chair, Clare Savage, said JGN’s high quality approach to consumer engagement put bill payers’ priorities at the centre of the decision.

“JGN’s meaningful engagement on its proposal, founded on multiple consumer forums held in coastal and regional NSW, meant that we knew JGN was ‘walking the walk’ and not just ‘talking the talk’ with its consumers.

“Energy affordability came out as a key priority for JGN’s gas consumers. To its credit, JGN has in turn responded to those concerns by putting forward a proposal that puts downward pressure on gas network charges and consumers’ bills in the 2020–25 period,” said Ms. Savage.

The AER’s decision allows JGN $2,175.9 million in revenue over the 2020–25 period, starting 1 July 2020.

From 1 July 2020, compared to current levels, average annual retail gas bills for residential consumers are expected to drop by $55 (8.3 per cent) in coastal areas and $81 (6.8 per cent) in regional areas, and $289 (6.0 per cent) for small business consumers. There will be modest increases for the remainder of the five year period.

JGN’s share of the retail gas bill for a typical residential consumer in its distribution network area is around 41 per cent in coastal areas and 33 per cent in regional areas.

The AER’s decision accepts JGN’s proposed operating expenditure and the majority of its proposed capital spending on the basis of improved supporting information.

The return on capital represents the area of greatest difference in dollar terms between what JGN proposed and what the AER accepted, largely due to downward movements in the rate of return in the period between JGN lodging its proposal and the AER making its decision.

“We have largely accepted what JGN has proposed because its engagement process demonstrated to us that the long term interests of consumers is at the heart of what it is doing,” said Ms. Savage.

But Ms. Savage said the AER’s decision refused JGN’s proposal to accelerate depreciation of its gas network as there is currently insufficient evidence the network will not be viable post‑2050.

“We haven’t accepted JGN’s proposal on this occasion, but we’re not dismissing the concept entirely in regard to our future decisions and we maintain an open mind on the issue of accelerated depreciation.

“The future is uncertain and network businesses need to innovate in response. As such, we commend JGN on its Western Sydney hydrogen trial to determine whether hydrogen could displace a portion of its natural gas load in future,” said Ms. Savage.

Notes to editors

The AER delayed its final decision which was originally scheduled for 30 April 2020. This was to incorporate the Reserve Bank of Australia’s (RBA) short term inflation forecasts released on 8 May 2020.

  • The AER has considered the RBA’s short term inflation and will adopt the trimmed mean inflation forecasts for the first two years of our 2020–25 determination. We consider that the use of the trimmed mean contributes to the best estimate of inflation over a ten year period due to the volatility in the CPI series.
  • Our future approach to inflation will be considered through our inflation approach review.

The AER recognises the delay may affect some retailers who wish to release revised prices by 1 July 2020.

The AER acknowledges COVID-19 is having an impact on consumers and the energy market. We are factoring this into our decisions through our approach to inflation. We have also acted through our Statement of Expectations, market monitoring and consideration of proposed rule changes.

The AER will continue to monitor the impact over the coming months to inform how we can deliver the best outcomes for households, businesses and industry.

About the AER

The Australian Energy Regulator (AER) works to make all Australian energy consumers better off, now and in the future.

  • We regulate electricity networks and covered gas pipelines, in all jurisdictions except Western Australia. We set the amount of revenue that network businesses can recover from consumers for using these networks.
  • We enforce the laws for the National Electricity Market and spot gas markets in southern and eastern Australia. We monitor and report on the conduct of energy businesses and the effectiveness of competition.
  • We protect the interests of household and small business consumers by enforcing the National Energy Retail Law. Our retail energy market functions cover New South Wales, South Australia, Tasmania, the Australian Capital Territory and Queensland.
  • We drive effective competition where it is feasible and provide effective regulation where it is not. We equip consumers to participate effectively, including through our Energy Made Easy website, and protect those who are unable to safeguard their own interests. We use our expertise to inform debate about Australia’s energy future.
Issued date: 
5 June 2020
AER reference: 
NR 21/20
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