AER downgrades Victorian network allowance by $2.3bn

Victorian electricity networks will have their revenue allowances downgraded by more than $2.3 billion in 2017 – a cut that is expected to reduce household electricity bills by as much as $120 out to 2020 – in a new ruling by the Australian Energy Regulator.

The Australian Energy Regulator announced the cut on Thursday in its final decisions on revenues for the five businesses that run Victoria’s electricity networks (see table below), the cost of which makes up between 20 and 40 per cent of electricity bills in Victoria.

Despite the cuts, however, the combined allowances total of $11.2 billion, which is, as predicted, an upwards revision on the AER’s draft decision, which had allowed $10.3 billion to be spent in Victoria.

In comments on the ruling, AER chair Paula Conboy said the changes to the networks’ business revenues – effective January 2017 – allowed sufficient revenue for asset maintenance and upgrades, while also locking in consumer savings on household electricity bills by between $50 and $120 over the 2016-20 period.

“The Victorian networks are already among the most efficient in Australia, but we have been able to reduce the revenue sought by networks by over $2.3 billion while allowing sufficient revenue to replace assets where necessary, connect new customers and fund day-to-day expenses,” Conboy said.

Conboys said the key drivers of the AER’s decisions were lower metering costs, with the completion of the smart meter roll-out phase, and improved financial market conditions since network revenues were last set in 2010.

Conboy said the decisions – which followed an intensive 13 month review process and “unprecedented” levels of public consultation – also included more than $400 million of bushfire safety expenditure for the distributors to manage this risk, including expenditure to meet existing regulations in Victoria. Provision has also been made to increase this line of funding if new bushfire safety regulations should take effect.

“The unprecedented level of public consultation follows reforms undertaken by the AER to guide network businesses to better engage with their customers,” Conboy said.

“Together with the AER’s own consumer challenge panel, the decisions have been greatly informed by the quality of stakeholder engagement we have received.”

Conboy also noted that while the AER expected retailers would pass through the savings, it also urged consumers to “shop around” and take advantage of competitive retail market offers to ensure they got the benefits of the ruling.