The AER today released a revised decision on SP AusNet’s smart meter expenditures for the 2012-2015 period, following a review requested by the Australian Competition Tribunal. The AER has rejected significant increases to expenditure allowances, as sought by SP AusNet, as this would have meant customers paying more because of cost overruns in SP AusNet’s choice of communications technology.
The communications technology is used to transmit data between the smart meter and the business’s data system. SP AusNet chose to adopt a different communications technology to that used by the other Victorian electricity network businesses.
The Tribunal agreed with the AER that a reasonable business in SP AusNet’s circumstances would have undertaken a thorough reconsideration of its communications solution when it realised that its original cost estimates had blown out. However, the Tribunal required the AER to examine the cost of changing to another technology, including whether switching costs would have been incurred if SP AusNet had changed technology.
“The AER has found that a reasonable business in SP AusNet’s circumstances should have switched to a lower cost technology in 2011,” AER Chairman Andrew Reeves said.
“However, the allowance for 2011 that the AER originally approved would have been more than sufficient to cover the costs of switching to the alternative technology in that year.”
“This decision reaffirms the AER’s previous decision (in October 2011) to provide SP AusNet with an allowance that is comparable to that forecast by other Victorian distributors. Consumers in SP AusNet’s distribution area should not be required to bear the cost of SP AusNet’s decision not to switch to a lower cost technology” Mr Reeves said.
If the AER had accepted SP AusNet’s proposal, current meter prices would increase by approximately 16 per cent each year in 2014 and 2015 on top of the 7 per cent previously allowed by the AER.
While no increases were considered necessary to account for switching costs, the AER has increased SP AusNet’s allowance by a small amount for foreign exchange contracts and project management, as required by the Tribunal. This will increase SP AusNet’s allowance by $17.5m. The effect is that current meter prices will increase by approximately 3 per cent each year in 2014 and 2015 on top of the 7 per cent previously allowed by the AER. For standard single phase single element meters, this means prices will increase by $12.93 in 2014 and $14.22 in 2015.
Background
In October 2011, the Australian Energy Regulator made its decision on SP AusNet’s smart meter expenditures for the 2012 to 2015 period. Following a legal challenge to this decision, the Australian Competition Tribunal required the AER to revisit certain parts of its decision.
In 2006, the Victorian Government decided to roll out advanced metering infrastructure (AMI), or 'smart meters', to all Victorian residential and small business electricity customers. The regulatory arrangements relating to the rollout are set out in a November 2008 Order in Council (OIC) made under the Electricity Industry Act 2000 (Vic). The OIC prescribes the time frame for the rollout, as well as the regulatory framework and the AER's responsibilities associated with the AMI rollout.
The AER is responsible for decisions made under the OIC from 1 January 2009 to 31 December 2015 following the transfer of functions from the Essential Services Commission of Victoria (ESCV). This includes the Budget and Charges Determinations for the 2009-11 budget period and the 2012-15 budget period. After 31 December 2015, AMI will be regulated by the AER under the National Electricity Rules (NER).