The Australian Energy Regulator today issued its final decision on the distribution determination to apply to ActewAGL's electricity distribution network for the period 1 July 2009 to 30 June 2014.
The AER is the national regulator with responsibility for assessing the efficient costs of energy network businesses and approving revenues for their monopoly services. This process generally follows a five year cycle. This is the first determination made by the AER for ActewAGL's distribution network.
ActewAGL is the sole electricity distribution network service provider in the ACT supplying electricity to around 156,000 customers.
"The final decision provides for $275 million worth of investment in ActewAGL's electricity distribution network over the next five years, which represents an increase of nearly 70 per cent from the current level of investment of $163 million for the past five years," AER Chairman, Mr Steve Edwell, said. "This increase in investment expenditure will result in higher electricity charges during the next five years." Mr Edwell said.
Impact on consumers
Based on data provided by ActewAGL, the AER estimates that the final decision will increase electricity bills by around $0.94 per week in real terms in 2009–10*. This increased charge includes the impact of the ACT government's feed in tariff legislation.
Actual prices will be determined by the AER in May 2009 following a further submission from ActewAGL. Any retail price increases are likely to flow through to customers in the second half of 2009. Distribution charges represent about 23 per cent of the average cost of final delivered energy in the ACT.
"While consumers within the ACT will face higher charges as a result of the increased investment, they will also benefit from a more reliable and secure network," Mr Edwell said.
"Given the proposed projects, including the construction of new zone substations at Eastlake and the Molonglo Valley, as well as augmentation of the Civic zone substation in the Canberra CBD, ActewAGL will be well placed to meet growing demand whilst maintaining network reliability and security."
In addition, ActewAGL has already undertaken significant capital works to reinforce and replace a large number of unsafe poles and these costs will now flow through to consumers.
Since the draft decision, the ACT government has introduced a feed in tariff scheme to promote the installation of residential solar generation. This legislation requires ActewAGL to collect additional charges from its distribution customers to fund the scheme. The cost impact of this legislation was unknown at the time of the draft decision, but has since been determined. The AER's final decision approves the recovery of $48 million in additional operating costs associated with the scheme. This will contribute to higher distribution charges during the next regulatory control period.
Impact of the economic downturn
Since the AER began its review of ActewAGL's proposal in June 2008, domestic and international economic conditions have deteriorated sharply. This has led to revised projections of economic growth, labour and commodities prices as well as funding costs for network businesses.
"For the final decision, the AER reconsidered key aspects of its draft decision, taking into account recent changes in the economic outlook," Mr Edwell said.
The most significant development since the AER's draft decision in November 2008 is the reduction in the yield on Commonwealth Government 10-year bonds from 5.46 per cent to 4.29 per cent in March 2009. This bond yield is the benchmark for determining ActewAGL's return on capital.
"The AER has carefully considered the impact of recent developments in financial markets and the economy more broadly. The cost of capital for the final decision is 8.79 per cent, down from 9.82 per cent in the draft decision. The AER considers that this marginally lower rate of return on investment for ActewAGL is now appropriate," Mr Edwell said.
"The economic downturn is also slowing growth in the cost of inputs such as labour and materials. The AER has undertaken a detailed analysis of forecast changes in these costs and, while they are still expected to rise over the next five years, the magnitude of these increases is now expected to be lower than previously anticipated. The AER's final decision on ActewAGL's regulated revenues for the next five years reflects these revised cost forecasts.
"Despite the revised economic outlook, there remains a need to build new network capacity to meet future customer demand in the ACT. As a result, distribution charges in the ACT are still forecast to rise during the next five year period," Mr Edwell said.
In making its final decision, the AER took into account ActewAGL's revised regulatory proposal, submissions from interested parties and advice from independent experts. These documents are available on the AER's website.
*ActewAGL has assumed an average customer is one on the Always Home @ ActewAGL plan and consuming 8000 kWh per annum. Always@ Home plan consists of the following charges:
- supply charge per day (incl. GST) – 51.7 cents
- consumption (incl. GST) – 14.19 cents p/kWh