The Australian Energy Regulator has released a decision regarding SP AusNet’s ‘insurance pass through event’ framework.
Under the regulatory framework, network businesses, in limited circumstances, are able to recover costs that were not accounted for when prices were approved. They can apply to the regulator to ‘pass through’ these additional costs. Costs in excess of those covered by insurance are an example of the type of costs that may be permitted.
When the AER first decided SP AusNet’s charges for 2011-15, it allowed for the costs of insurance and included a pass through provision for costs in excess of those covered by insurance. However, the decision did not cover pre-2011 insurance policies. SP AusNet sought a review by the Australian Competition Tribunal. On 5 April 2012, the Tribunal directed the AER to reconsider the matter.
In reconsidering this matter, the AER has to decide whether to extend the coverage to pre 2011 insurance policies. Under the previous determination that covered the 2006-2010 period, SP AusNet did have the right to apply to recover costs in excess of its insurance cover for pre-2011 policies.
The AER has decided that the definition of an insurance event will be expanded to include the costs which exceed the insurance limits covered by pre-2011 insurance policies. The AER’s decision acknowledges SP AusNet’s previous rights to apply for recovery of costs from customers.
The AER has received no applications, nor has it made any determination allowing any additional costs related to SP AusNet’s bush fire related insurance claims.
“This decision allows SP AusNet to apply to the AER to recover costs above insurance on pre-2011 policies. However, it does not automatically entitle SP AusNet to pass through costs above insurance,” AER Chairman Andrew Reeves said.
“SP AusNet must apply to us for approval to pass through costs to customers. Our assessment of any cost pass through application would consider, amongst other things, the actions taken by SP Ausnet to manage their risks and to reduce the magnitude of the costs. We would also consider any court judgements or litigation settlements.”
“This decision gives SP AusNet a similar opportunity to apply for a pass through of costs that existed under the previous regulatory arrangements administered by the Victorian Regulator,” Mr Reeves said.
To recoup the costs during the previous regulatory period, SP AusNet could ask the Victorian Regulator to reopen the determination to recover costs above insurance limits that were beyond its control. The reopener provisions were also subject to a number of conditions. This decision provides a consistent regulatory treatment to costs above insurance for pre-2011 policies, irrespective of whether costs were incurred in the previous regulatory period or the current period covered by the AER’s determination.