The Australian Energy Regulator has issued its draft determinations for Queensland's electricity distribution network service providers, Energex and Ergon Energy, for the five year period of 1 July 2010 to 30 June 2015.
Energex provides electricity to nearly 1.5 million customers (or around 2.8 million residents) in the south east Queensland while Ergon Energy delivers electricity to over 630 000 customers (or 1.4 million residents) across the remainder of the State.
The AER has approved substantial increases in the revenue allowances for both Energex and Ergon Energy. The higher approved revenues result from the continuing need to augment Queensland's electricity distribution networks following strong growth earlier in the decade and the continued growth in population and energy use per customer, higher reliability standards and real increases in the cost of labour and materials.
The approved revenues for Energex and Ergon Energy are also higher as a consequence of higher capital costs resulting from the global financial crisis. The approved cost of capital for Energex and Ergon Energy is around 1.5 percentage points higher than in the current regulatory period.
For Energex, the AER has approved capital expenditure of $5718 million (33 per cent more than in the previous five years in real terms) and $1586 million operating expenses (3 per cent less than in the previous five year period in real terms).
AER Chairman Steve Edwell said today that: "The approved allowances are less than that sought by Energex but that this reduction largely reflects the AER's different view of expected growth in costs and the timing of projects rather than the quantum of work that Energex has proposed."
For Ergon Energy, the AER has approved capital expenditure of $5013 million (24 per cent more than the previous five years in real terms) and operating expenditure of $1514 million over the five year period (1 per cent less than in the previous period in real terms). Mr Edwell noted that the AER had reduced the expenditure proposed by Ergon Energy to ensure that only prudent costs would be recovered from customers, as the National Electricity Rules require.
The AER's final decision, to be made in April next year, will set the distribution charges that make up around 40 per cent of the typical residential customer's electricity bill.
Based on the draft determination, network charges for Energex's customers would increase in nominal terms on average by 21 per cent in the first year of the regulatory period, followed by 6 per cent in the subsequent years of the period (see note below).
For Ergon Energy's customers, network charges would increase by 26 per cent in the first year followed by 4 per cent in the subsequent years of the period.
In terms of the average residential customer in Queensland, the draft determination would result in an annual electricity charges rising by $133 (around 9 per cent) in 2010-11 and by around $31 (around 2 per cent) each year thereafter in nominal terms.
In response to the AER's Draft decision, Energex and Ergon Energy are expected to submit revised regulatory proposals to the AER by 14 January 2010. Submissions on the AER's draft decision and the revised regulatory proposals are invited from interested parties and may be made by 16 February 2010. The AER will make its final decision by the end of April 2010.
Mr Edwell noted that in making its decision the AER took into account advice from independent experts and the submissions from interested parties. The documents will be available on the AER's website.
Distribution charges represent around 40 per cent of the total cost of supplying electricity to residential customers. Typically these customers do not see distribution charges in their electricity bills. Instead, the charges are included in tariffs charged by electricity retailers, such as AGL and Origin. The AER's final decision on distribution charges will be incorporated into retail tariffs from 1 July 2010 onwards.