The NSW government has announced the long term lease of the state’s electricity transmission company, TransGrid.
Under the terms of the deal a consortium led by Spark Infrastructure and Hastings Funds Management will take 100% control of TransGrid under a 99 year lease agreement. This represents the NSW Government’s first disposal of network assets and is expected to be followed by partial leases of the Ausgrid and Endeavour Energy distribution businesses during 2016. The final distribution business, Essential Energy will be retained by the Government.
What this means for electricity customers
TransGrid is the monopoly owner and operator of the high voltage transmission network in NSW. This network is used to transmit electricity long distances from the major generation centres to the major load centres and also more generally to remote areas of the state. As a monopoly the prices that TransGrid can charge for its services are regulated by the Australian Energy Regulator (AER).
In April of this year the AER released its final determination on TransGrid’s pricing for the period until 30th June 2018. Under this determination the amount that TransGrid can charge to its customers was reduced by 15% in real terms in financial year 2014/15 and by 3% in real terms for the following three years. This determination has been implemented and will not be affected by the recently announced sale of TransGrid.
TransGrid’s customers are the NSW and ACT distribution networks of Ausgrid, Endeavour Energy, Essential Energy and ActewAGL. These distribution networks pass on to the retail companies the cost of purchasing transmission services from TransGrid, which in turn pass it on to you. Because transmission charges are “ground into” the distribution network businesses distribution tariffs you will not see a separate line item for them on your monthly invoice. Rather, they are included within the other individual line items shown under the network costs category.
The year on year reductions in TransGrid’s charges described further above are similar to the reductions passed down by the AER to the network businesses in its final determination on distribution network charges made in April of this year. Whilst the distribution pricing determination is currently under dispute and may be revised, there has been no dispute lodged against the TransGrid determination which will stand.
Whilst transmission costs are not insignificant, they are much lower than distribution costs. Total allowable revenue to be recovered from customers by TransGrid for transmission services in the four year period ending June 2018 is $3,306M. Total allowable revenue for distribution services over the same period is $15,236M not including the transmission component recoverable by TransGrid.
Should private ownership allow TransGrid to reduce its operating and capital expense costs it is possible that the AER will further reduce TransGrid’s prices during the next price setting period commencing July 2018. However, in making its pricing determinations the AER considers very many factors including allowing the shareholders to make a reasonable rate of return on investment, the size of the regulatory asset base and the reasonableness of operating and capital expenditure estimates the combination of which will influence the final outcome of the next pricing determination.