The Australian Energy Regulator (AER) has issued its draft determination for Victoria’s electricity distribution network service providers: Powercor, SP AusNet, Citipower, United Energy and Jemena Electricity for the period 1 January 2011 to 31 December 2015.
The Victorian distributors have each sought substantial increases in expenditure compared with recent trends. Overall, increases of over 66 per cent in capital spending and 38 per cent in operational expenditure have been proposed.
“These substantial increases in network expenditure are not justified when you consider the fundamental characteristics of the Victorian distribution network,” Mr Andrew Reeves, acting AER Chairman, said today.
“On the whole, the Victorian distributors are efficient operators of a mature and comparatively reliable network. They have performed well over the current five year period and have also had the benefit of a strong economy and strong sales. Under the Regulator’s rules, customers share in these gains at each price review.”
The AER’s draft decision would lead to a reduction in the average residential bill of around 2.3 per cent on average in the first year (2011) and increases in the following years of between 0.9 per cent and 1.1 per cent in nominal terms. The impact varies for each distributor.
“In a relatively stable environment, past expenditure is a good guide to future needs. However, additional expenditure is needed to maintain reliability, meet increased costs and growing demand.
“On this basis, the AER considers capital expenditure should increase on average by 16 per cent on actual expenditure in the current period to $3.4 billion, or $2 billion less (38 per cent) than that proposed by the distributors. A total operating expenditure allowance of $2.2 billion over the forthcoming period, an increase of 2 per cent, is also seen as justifiable. We have also made allowance for the higher capital and financing costs that the firms now face,” added Mr Reeves.
“The AER has also provided additional allowance for prudent bushfire mitigation in line with existing requirements, but has been careful not to pre-empt any changes in regulatory requirements for bushfire mitigation which are currently being considered by the Victorian Bushfires Royal Commission and the Victorian Government. In the event of new regulatory requirements, the AER will review any necessary increases in costs.”
Distribution charges represent 40 per cent of the total cost of supplying electricity to residential customers. Typically these customers do not see distribution charges on their electricity bills. Instead, the charges are included in electricity tariffs charged by electricity retailers, such as Origin and AGL. The AER’s final decision on distribution charges will be incorporated into retail tariffs from 1 January 2011.
