Australian Competition Tribunal Order Regulator to Revisit its Decision on NSW and ACT Distributors’ Revenues

by Energy Action | Feb 29, 2016
On Friday 26 February the Australian Competition Tribunal handed down its decision on regulated distribution revenues for Ausgrid, Endeavour Energy, Essential Energy and ActewAGL, and the gas distributor Jemena Gas Networks (NSW).

The decision will affect prices charged to customers for electricity in NSW and ACT over the period to June 2019 and also to customers of Jemena Gas Networks (NSW) to June 2020.

Mid last year the Australian Energy Regulator (AER) published its revenue decisions mandating the maximum revenue that each of these businesses could charge to its customers until the end of the decade. These contained one off cuts between 17% and 31% with Ausgrid, the largest NSW distribution business, receiving a 25% cut.

On appeal the Australian Competition Tribunal has ordered the AER to revisit its revenue decision on a number of matters but most significantly for the operating expenditure that it had allowed the businesses to charge through to customers. Operating expenditure is one of the largest costs for distribution businesses, with the electricity distributors requesting a total of $6.82B over the five years from 2015 to 2019 and with the AER originally cutting this by $1.75B or 25%. In making this order the Tribunal said that the AER should have used a broader range of modelling and benchmarking methods as well as including a bottom up assessment of costs in coming to its operating expenditure decision.

In what will be seen as a blow to customers, who will likely have to pay more, the AER will now have to look again at its revenue determination for these businesses. The NSW Government, however, may see this as a victory as it will help in the sale process currently underway for Ausgrid and Endeavour Energy.

Because the Tribunal did not make a revenue decision itself, but asked the Regulator to look at it again, the timing and outcome of the Regulators revised decision is uncertain but will be several months in coming.

Customers in the ACT and NSW should note that the prices that they are charged by the distribution businesses will not change until the revised decision is delivered, and then most likely only from commencement of the following financial year. For customers in other states, the decision may affect prices cuts already handed down for Victoria and South Australia although no decision has been made on this yet. Customers in Queensland are likely to retain price reductions already made and for those in Tasmania the Regulator has not yet handed down its revenue decision. The Western Australian distribution business, Western Power, is regulated by the state based Economic Regulation Authority, not by the Australian Energy Regulator.

For more information: AUSTRALIAN COMPETITION TRIBUNAL DECISION SUMMARY

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