AER tax review to put energy networks under microscope

An investigation into whether electricity networks and regulated gas pipelines are gouging consumers to cover their corporate tax liabilities has been launched.

Federal Energy Minister Josh Frydenberg announced the tax review, to be carried out by the Australian Energy Regulator (AER), this morning.

“As part of the revenue determination process, regulated networks receive an allowance to cover their corporate tax liabilities,” Minister Frydenberg said.

“This is passed onto consumers, at a cost of around $600 million a year.”

Australian Taxation Office (ATO) analysis of tax data between 2013 and 2016 has revealed a discrepancy between the tax allowances the AER previously set for network businesses and the amount those businesses actually pay, Minister Frydenberg said.

“It is totally unacceptable for consumers to be charged for corporate tax liabilities that are not actually incurred,” he said.

“The ATO was limited in the advice it could provide due to tax privacy laws so the government has asked the AER to investigate further.

“If necessary, the AER will be able to exercise its information gathering powers to obtain any material they need to complete their review.

“The AER will review how it models tax costs and make any changes required before the next round of revenue determinations, which are due in April 2019.

“It will also provide recommendations on any changes required to the national energy rules.”

Energy Network Australia CEO Andrew Dillon said while a review of the issue was appropriate, it was essential that regulatory changes were in the long-term interests of customers and not knee-jerk political reactions.

“Networks are not gouging customers,” he said.

“The current benchmark approach to tax allowances is set by the AER to avoid customers in different suburbs paying different charges and the risk of sudden price rises when there is a change of ownership.

“Many knee-jerk policy decisions over recent decades affecting energy networks have led to poor consumer outcomes. We can’t go down that path again.”

The review complements action already taken by the government to fix the regulatory framework, including abolishing the Limited Merits Review.

An initial report from the AER is expected mid this year, with a final report to the COAG Energy Council by December 2018.