Energy industry rejects assertions of unnecessary spending

Energy Networks Association (ENA) chief executive, John Devereaux responded to comments made by Australian Energy Regulator (AER) chairman, Andrew Reeves concerning energy regulation reform in June.

Mr Devereaux said the industry was disappointed that the Australian Energy Regulator failed to stand by its past decisions and instead suggest that price rises have resulted from excessive spending by networks and that the AER’s ability to influence that spending was constrained.

At a seminar hosted by the Energy Users Association of Australia in June, Mr Reeves reported on the key issues from its review of the National Electricity Rules that determine how energy network prices are set.

“The current rules limit the ability of the regulator to determine efficient costs, putting upward pressure on energy prices for consumers,” Mr Reeves said.

“It is important that the regulator has the ability to determine allowances that give the businesses a commercial return to invest to meet needs. However, it is also essential that consumers are not required to pay more than necessary for the safe and reliable supply of electricity. The rules must allow the regulator to set allowances based on best practice industry benchmarks.”

The AER is currently drafting a rule change proposal that will be submitted to the Australian Energy Market Commission (AEMC) later this year. The rule change proposal will focus on how the regulator can ensure that the allowances for businesses are no more than necessary. Further, the AER is examining ways to ensure that businesses are not rewarded for unnecessary and excessive overspends.

Mr Devereaux said Mr Reeves’ comments were an “unhelpful distraction”.

“Through its 17 electricity network pricing determinations to date, no government body is in a better position to understand the real underlying drivers of network prices than the AER. Yet for the first time in five years and in thousands of pages of regulatory decisions to date, the AER now proposes that there is a problem of lack of regulatory power,” Mr Devereaux said.

Energy Users Association of Australia (EUAA) executive director, Romans Domanski welcomed Mr Reeves comments.

“The price of electricity has spiralled as a result of network charges,” Mr Domanski said.

“Australia’s energy regulators have hitherto said that the reason for these spiralling costs has been factors that the industry and regulator cannot control – such as demand growth and ageing assets. The EUAA has provided convincing evidence that spiralling costs can be attributable mainly to inadequacies in the design and implementation of regulation along with inefficiencies associated with government ownership.”

The energy network industry did not agree with the AER’s contentions and “looks forward to continuing to focus on promoting a strong, stable and effective regime that delivers the outcomes that customers value”.

Addressing an Energy Price and Market Update seminar in June, Mr Devereaux said the regulatory rules in place since 2006 have delivered the investments required to meet the challenges of changing energy consumer needs, dramatic increases in household energy demands, enhanced reliability standards and the connection of new renewable sources of energy.

“The electricity networks of 20 years ago were simply not capable of meeting those challenges. These outcomes have been delivered in the face of a need to replace a generation of ageing poles and wire assets at a time of unprecedented global capital market disruptions. Meeting this challenge, whilst networks continued to deliver well on measures of quality and reliability of supply, emphasises the fundamental robustness of the regime,” he said.

Mr Devereaux also emphasised the need for stability in the regulatory regime applying to energy network companies, noting that investors in those companies, whether private or government, were investing in long-lived assets where the return on investment occurred over a period of up to 40 years.

“Meeting the challenges of renewing, extending and upgrading physical networks in this environment has involved increased investment, with associated price rises. Importantly, the regulatory framework allows for the Australian Energy Regulator to approve proposed network price increases against a set of rules, which is designed to take into account the long-term interests of consumers,” he said.