The Australian Energy Regulator’s April decision to cut the revenue of the nation’s energy networks by around one-third appears to have pleased no one in NSW, with both the state’s electricity networks and its consumers set to mount separate – and diametrically opposed – legal challenges against the ruling.
The Australian Financial Review reports that NSW’s three electricity distribution firms – Ausgrid, Endeavour Energy and Essential Energy – are taking legal action to overturn price cuts of about 20 per cent imposed on them by the Australian Energy Regulator in its April 30 pricing determination.
In a legal battle that could affect the timing and value of Premier Mike Baird’s planned $13 billion power asset sale, the networks will challenge the decision, arguing the cuts are too deep, in the Australian Competition Tribunal. (The government plans to lease 51 per cent of Ausgrid and Endeavour Energy in coming months.)
The group, also known as Networks NSW, argue annual average household electricity bills will fall by up to 12 per cent following the decision.
“We believe the AER has made serious material errors in its final determinations including the use of flawed and unreliable benchmarking to justify cuts to operating expenditure,” Networks NSW CEO Vince Graham said on Thursday, the deadline for lodging appeals.
Graham says the new budget is not sustainable and will result in thousands of job losses. The NSW government is also facing lower returns on its proposed lease because of the smaller budgets.
Meanwhile, on the other side of the electricity equation, the AER is also facing a legal challenge from the Public Interest Advocacy Centre, which argues the cuts aren’t deep enough and will have the effect of keeping retail electricity prices unnecessarily high for consumers.
Marking the first time a consumer organisation has ever appeared before the Tribunal, the PIAC will argue that the revenue granted to the network businesses remains excessive, and winds up costing consumers.
“Network prices in NSW are now double what they are in Victoria – in other words, it costs twice as much to get electricity from a power station in NSW to a consumer than in does in Victoria,” said Gabrielle Kuiper, senior policy officer in PIAC’s Energy + Water Consumer Advocacy Program.
“PIAC is particularly concerned about the changes that were made between the AER’s draft determinations late last year and the final determinations made on 30 April, which allocated an additional $2.3 billion to capital and operating expenses across the businesses. The Law requires expenditure to be efficient and we don’t believe the final determination reflects efficient costs for
As we reported at the time, the AER’s April 30 decision was, indeed, more lenient than its initial determination last November, when it fairly slapped down the NSW grid operators’ bid to boost spending by as much as 50 per cent.
In its final ruling, the AER allowed more capital expenditure than in its preliminary ruling, but offset that by imposing a dramatically lower rate of return on equity.