The Australian Energy Regulator (AER) has issued placeholder determinations for ActewAGL, Ausgrid, Endeavour Energy and Essential Energy. These determinations will provide lower electricity charges during the transitional period from 1 July 2014 to 30 June 2015.
“The AER’s decision to reject the businesses’ proposals and pass through cost savings will put downward pressure on prices for residential and business customers in NSW and the ACT,” AER Chairman Andrew Reeves said.
For a typical customer, these network service charges represent about 40 per cent of the total electricity bill with generation costs, transmission charges and retailer’s charges making up most of the remainder.
Mr Reeves also stated that, “The AER estimates that current electricity bills for an average residential household living in NSW and ACT will reduce, on average, by $38 annually in NSW and $19 in ACT as a result of this decision. Similarly, electricity bills for small business customers, such as shop owners, will reduce by an average of $60 annually in NSW and $29 in ACT.”
ActewAGL, Ausgrid, Endeavour Energy and Essential Energy are the principal electricity distribution network service providers in the ACT and NSW. These businesses are responsible for the poles and wires that transport electricity to homes and small businesses in NSW and the ACT. This decision sets the revenue amounts that these four businesses can recover from their customers in 2014-15.
“The AER has not accepted the revenue allowances proposed by any of these four businesses for the transitional year. The AER has applied a lower rate of return and corporate tax allowance, consistent with our rate of return guideline and recent market trends.”
“Because the demand for electricity has been less than expected, the New South Wales businesses over-estimated capital expenditure and subsequently underspent between 2009 and 2014. The AER has required the businesses pass on these cost savings to end users,” Mr Reeves said.
The AER estimates that if these lower distribution charges were passed on to residential customers, the average electricity charge for customers will reduce over the next 12 months by between $33 and $47 in NSW, and by $19 in ACT, as set out in table 1 below. Table 1 also shows the indicative impact on annual charges if the AER had accepted the businesses’ proposals.
| DNSP | Estimated annual charge ($nominal) | Impact on annual charge- proposed by businesses | Impact on annual charge- AER DECISION |
|---|---|---|---|
| Ausgrid | $2106 | $2 (or 0.1%) | -$36 (or -1.7%) |
| Endeavour Energy | $2026 | -$2 (or -0.1%) | -$47 (or - 2.3%) |
| Essential Energy | $2703 | $29 (or 1.1%) | -$33 (or - 1.2%) |
| ActewAGL | $1959 | $37 (or 1.9%) | -$19 (or - 1.0%) |
Source: AER, IPART, ICRC. Based on typical annual consumption of a 5-6 person household of 6500 kWh in postcode 2112 (Ausgrid), 2500 (Endeavour Energy) and 2650 (Essential Energy) in NSW and 8000 kWh in ACT.
Notes: Based on distribution charges only.
Table 2 shows the estimated impact of our decisions for the transitional regulatory period and the businesses proposals on a small business customer’s electricity charges in NSW and ACT.
| DNSP | Estimated annual charge | Impact on annual charge - DNSP | Impact on annual charge - AER |
|---|---|---|---|
| Ausgrid | $3374 | $3 (or 0.1%) | -$58 (or - 1.7%) |
| Endeavour Energy | $2909 | -$3 (or -0.1%) | -$68 (or - 2.3%) |
| Essential Energy | $4567 | $49 (or 1.1%) | -$56 (or - 1.2%) |
| ActewAGL | $2939 | $56 (or 1.9%) | -$29 (or - 1.0%) |
Source: AER, IPART, ICRC. Based on typical annual usage of 10 MWh in NSW in postcode 2112 (Ausgrid), 2500 (Endeavour Energy) and 2650 (Essential Energy) and ACT.
Notes: Based on distribution charges only.
These changes are in addition to the reductions in TransGrid’s transmission charges that the AER announced two weeks ago.
The NSW and ACT distribution businesses were originally due to have revenue determinations for a full regulatory control period of five years starting on 1 July 2014. However, to enable a new regulatory framework to apply to the businesses as soon as possible, transitional arrangements were applied. Under these arrangements the AER is now providing the businesses with a placeholder revenue allowance. We will make a full determination in April 2015.
The placeholder determination process has been designed so that the AER is required only to make a high level assessment of the revenue proposals. The placeholder determination is based on indicative inputs. Any differences between our placeholder revenue allowance and our approved revenue allowance in the full determination will be recovered as part of our full determination to be published by 30 April 2015.
Apart from the adjustments for a lower cost of capital and corporate tax allowance, the AER has not made any other adjustments to the revenue proposals for these businesses for the transitional year, including the businesses estimates of capital expenditure and operating expenditure. All aspects of the revenue proposals will be examined in detail as part of the AER’s full determination process.
In considering the distribution businesses’ regulatory proposals for the transitional period, the AER is required to be satisfied that the revenue allowances for these businesses are reasonably likely to minimise price shocks to consumers.