AER releases draft decisions for Ergon Energy and Energex 2025-30 revenue proposals

The AER has released draft decisions on the 2025-30 revenue proposals submitted by electricity distribution businesses Ergon Energy and Energex, subsidiaries of Energy Queensland. 

Electricity distribution network businesses are required to submit revenue proposals to the AER every five years, outlining how much they intend to recover from consumers over the next five years. 

Our draft decisions on expected revenues for main standard control services for the 2025-30 period are ($nominal): 

• Ergon Energy: $8,365.9 million ($ nominal, smoothed), or $156.4 million (1.8%) less than proposed.
• Energex: $8,703.6 million ($ nominal, smoothed), or $194.2 million (2.2%) less than proposed.

Our draft decisions for Ergon Energy and Energex seek to ensure efficient investment in a safe, reliable network that meets consumer needs and contributes to the energy transition. While businesses need to invest in their networks, this must be managed carefully, with a view to protecting consumers’ long-term interests. 

Consumer needs should be a key focus of the revenue proposals. The AER encourages network businesses to engage meaningfully and comprehensively with consumers, to ensure that future investment decisions meet consumer needs.

We recognise that network businesses are responding to a rapidly evolving energy system and to disruptive events such as floods, bushfires, and cyber-risks. We also recognise that networks must adhere to safety regulations and technical standards. Our draft decisions reflect our support for Ergon Energy and Energex to efficiently improve network resilience, maintain safety, integrate consumer energy resources, and implement cyber security measures. We also support implementing new tariff options to promote efficient use of the evolving energy system, while preserving consumer choice. We are pleased to see Ergon Energy and Energex’s commitment to containing operating expenses through efficiency and productivity adjustments.

Our draft decision recommends reductions to Ergon Energy’s current period replacement expenditure overspend. We assessed Ergon Energy's overspend over financial years 2018-19 to 2022-23, when Ergon Energy’s actual capital expenditure exceeded what was forecast by $1,195.0 million. While we found a genuine need for Ergon Energy to increase its spending in 2018 to 2023 to address pole defects, our review found that Ergon Energy’s approach did not reflect prudent and efficient decision making. Our draft decision ensures consumers are not paying more than necessary for network investment.

We also recommend reductions to Ergon Energy’s forecast replacement and augmentation expenditure as well as Energex's forecast augmentation expenditure over 2025 to 2030. Based on the information before us, we consider these areas of spending are not in line with prudent and efficient decision making. We consider these draft decisions as placeholders, and encourage Ergon Energy and Energex to provide us with the relevant supporting information in their revised proposals.

We are currently considering the 2025-30 revenue proposals from SA Power Networks and Directlink. Our draft decision on these two proposals will be published on 27 September 2024. 

Next steps

The businesses have until 26 November 2024 to respond to the respective draft decisions with a revised proposal. We encourage businesses to take a consultative process on key elements of our draft decision to ensure that consumer views are reflected in their revised proposals.

The AER will hold online public forums on the draft decisions on 10 October 2024. Stakeholders can register their interest in the forums here. Interested stakeholders are invited to provide submissions on the draft decisions and revised proposals by 17 January 2025. Submissions and requests to make a submission via alternative methods should be emailed to energyqueensland2025aer [dot] gov [dot] au (energyqueensland2025[at]aer[dot]gov[dot]au).

The AER’s final determinations, which will be made by 30 April 2025, will set revenues that will form the basis for the charges for the 1 July 2025 to 30 June 2030 regulatory period.