The Australian Energy Regulator (AER) has issued its preliminary decision on the revenue proposal submitted by SA Power Networks for the five years starting on 1 July 2015.
The preliminary decision proposes the revenue amount that SA Power Networks can recover from customers. Up to 38 per cent of an average household’s energy bill can be attributed to the cost of delivering electricity through the distribution network.
SA Power Networks will be allowed to recover revenue of $3211 million for the five years commencing in July 2015. This is around 32 per cent lower than the $4745 million proposed by SA Power Networks.
“The AER’s preliminary decision proposes lower network charges for transferring electricity. This is expected to result in lower electricity bills for customers in South Australia.” AER board member Jim Cox said.
“The AER expects that annual electricity bills for a typical residential household living in South Australia will reduce, on average, by $197 (9.8 per cent) in 2015–16.”
“Through our Better Regulation program the AER has developed new guidelines and techniques, including improved benchmarking, to better forecast how much network businesses operating prudently and efficiently should need to spend,” Mr Cox said.
“Any costs above efficient levels will need to be funded by the network owners, not customers.”
“The demand for electricity has fallen and is expected to remain reasonably flat over the 2015 to 2020 regulatory control period. This puts less strain on the network and requires less investment to provide a reliable supply of energy. This preliminary determination reduces the spending proposal to ensure that only prudent and efficient costs are recovered from consumers,” Mr Cox said.
“The AER has not accepted the revenue allowances proposed by SA Power Networks. In part, this is due to our decision to apply a lower rate of return and corporate tax allowance, consistent with our rate of return guideline and recent market trends.”
“The perceptions of risk which increased during the global financial crisis, when the AER made its last determination, are now decreasing. This means that the lower cost of capital for debt and equity translate into lower financing costs necessary to attract efficient investment,” Mr Cox said.
SA Power Networks proposed expenditure for additional bushfire risk management and road safety improvements. The AER has not accepted these additional expenditure proposals. “While our preliminary decision maintains existing funding for these activities, SA Power Networks has not adequately justified the additional expenditure. We understand some of proposed measures could be funded from sources other than electricity customers,” Mr Cox said.
The AER has established an expert panel including consumer advocates to advise on how pricing proposals meet consumer expectations. The Consumer Challenge Panel (CCP) assists the AER to make better regulatory determinations by providing input on issues of importance to consumers.
“We have seen an unprecedented level of consumer engagement in the AER’s decision making process. On the whole, consumers have been saying to us that the level of expenditure sought by the business is not sufficiently justified,” Mr Cox said.
Further information on the CCP and Better Regulation program can be found on the AER website.. More detailed information of the preliminary decision can be found in the separate fact sheet for the business.
The AER welcomes submissions from consumers on its preliminary decision. Information on how to make a submission can be found on the SA Power Networks determination.