Consumers could be left holding the $11 billion bill for the gas death spiral

Without urgent reform, Australian households risk being left holding the bag for the so-called ‘gas death spiral’, consumer advocates warn.

Brian Spak, from Energy Consumers Australia (ECA), warns that if nothing changes it will be renters, apartment dwellers and low-income households – those with the biggest barriers to going all-electric – who will be left stuck on gas with spiralling bills.

Spak says the issue comes down to the way that gas regulations are written, and in the way that the AER is implementing them and the issue is being discussed in energy policy circles.

“Our concern is that right no … (the assumption is) that consumers are on the hook for all of it, and we don’t think that’s fair,” Spak, ECA’s general manager of advocacy and policy, told the SwitchedOn Australia podcast.

“The total size of that of gas distribution networks regulated asset base is $11 billion in Australia, and that’s a really important number, because that $11 billion has to get paid one way or the other, and it’s uncertain right now who’s going to pay it,” he says.

Rules written for a growth industry, not a shrinking one

ECA argues the regulations governing gas networks are “not fit for purpose” because they were designed for a sector that was meant to keep expanding.

“They were designed around this concept that the gas network would always grow. But the gas network is going to shrink or become less used,” Spak says.

As households electrify and leave the gas system, the fixed costs of pipelines don’t disappear. Under current rules, those costs get shared across a shrinking pool of remaining users.

At present, gas distribution networks recover costs by adding them to their regulated asset base and spreading them across bills. Developers and customers usually pay part of the cost for new connections, but much of it still gets socialised across all users.

“If the system keeps treating every new connection as a shared cost, that asset base can grow, and so will the long-term liability on remaining customers,” Spak warns.

“This $11 billion bill that’s going to come due, we’ve got to figure out who’s going to pay for it. We don’t want that to grow to 12 billion or 13 billion or 15 billion, because we keep socializing these connections.”

The ECA is pushing for a package of reforms to protect households and stop the spiral from accelerating:

Make new users pay connection costs

ECA wants new gas customers to pay the full cost of connecting, rather than spreading the expense across the whole system.

The Australian Energy Market Commission has already drafted a rule requiring new customers to face a “cost-reflective” charge for gas hookups, making the price signal clearer against electric alternatives.

Slow accelerated depreciation

Some regulators have allowed networks to recover costs faster, front-loading bills for current consumers while insulating investors.

“What’s happening is that gas consumers are paying more now, so network investors reduce their losses,” says Spak. ECA wants tighter limits so households aren’t subsidising investor risk management.

Force better planning and transparency

Unlike the electricity sector — which is guided by the Integrated System Plan and annual planning reports — gas networks publish little about their future.

Without regular, public planning data, governments and communities can’t coordinate efficient bulk disconnections or manage costs sensibly.

“Right now, we don’t have the data to do that,” Spak says.

Protect households from stranded appliances and disconnection costs

It’s not just pipelines at risk of being stranded — it’s household appliances too.

“Customer devices, appliances are assets too,” says Spak. “Those might become stranded if a customer buys a gas stove or a gas water heater today that they think is going to last them 15 or 20 years.”

ECA wants clearer labelling so buyers understand the transition risk, plus fairer disconnection processes to prevent households being slugged with high exit fees.

A fairer exit from gas

Spak says none of these measures will “stop” the gas death spiral, but they could slow it down and stop households from being unfairly hit with ballooning costs.

“We can’t stop that gas death spiral, and these rule changes don’t solve the problem, but they start to solve the problem,” he says.

ECA would prefer governments follow Victoria and the ACT in banning new gas connections altogether. But until then, urgent reforms are needed to keep the $11 billion gas bill from growing even larger.

“We haven’t seen a lot of attention being paid by jurisdictional governments about how to solve this problem,” Spak warns. “And the problem only gets worse the longer we wait to try and address it.”

You can hear the interview with Brian Spak on the SwitchedOn Australia podcast.

If you wish to support independent media, and accurate information, please consider making a one off donation or becoming a regular supporter of Renew Economy. Your support is invaluable.