The Australian Energy Regulator has rejected a bid by gas network company Jemena to pass on a nearly $80 million spend on “renewable gas” infrastructure to customers, citing “significant commencement and completion risk.”
In a final determination on Jemena’s gas access arrangement for the 2025-30 regulatory period, the AER has allowed for $3,106.7 million in total revenue to be recovered from consumers over that time – 4.3% less than the amount Jemena proposed, but 16% more than the amount approved for 2020-25 period.
The regulator says the higher expenditure for the coming period has several drivers, including “market variables outside of [Jemena’s] control,” like higher expected inflation. Preparations for a renewable gas supply, however, did not make the cut.
“There are potential benefits of connecting biomethane to the gas network for some users. However, there is currently significant uncertainty around these investments,” AER chair Clare Savage said in a statement released alongside the regulator’s decision.
“Our decision doesn’t prevent Jemena Gas Networks from undertaking the capital expenditure during the access arrangement period and seeking funding once these supply arrangements are more certain,” Savage says.
“The decision proposes an alternative pathway for investment in renewable gas connections that places less risk on consumers.”
In the meantime, the main focus of the regulator is to manage declining demand for gas network services as more and more businesses and households around the country switch to efficient, electric and solar powered appliances.
In this scenario, gas companies are pushing to fast-track the cost-recovery process for future stranded assets, to avoid this being charged to an increasingly small pool of customers.
To this end, the AER says it has not accepted Jemena’s revised accelerated depreciation amount of $230 million for the coming period and instead halved that to $115 million over 2025-30.
Savage says this reflects the current outlook and strength of policy signals for the gas network in the state, with the NSW government so far declining to follow Victoria’s example of phasing gas out of homes.
The AER chair also warns gas networks not to rely on accelerated depreciation, alone, to manage the seemingly inevitable residential shift to electrification.
“Accelerated depreciation can be used as one tool for reducing stranded asset risks while there is a wide consumer base; however, it has limitations and on its own can’t resolve the issues faced by the gas networks and customers from anticipated declining demand,” Savage said on Wednesday.
“Declining demand is ultimately the key driver of rising future network prices. So long as demand continues to decline, no affordable amount of accelerated depreciation will achieve long-term price stability.”
Energy Consumers Australia (ECA) says the AER’s decision, while taking some steps to minimise upward pressure on customer bills, underlines the urgent need to ensure millions of consumers aren’t unfairly paying for the declining gas market.
“One of the most impactful things we can do now to lessen the risks posed by stranded assets is to stop unnecessary spending on the gas network,” ECA chief Brendan French said on Wednesday.
“The AER has, however, increased Jemena’s proposed spending on connecting new customers to their network, which we think is a problem given the known risk that consumer gas bills will rise in the near future.
“Gas networks are in decline, so there is a need to appropriately plan for this future to ensure consumers who can’t get off gas are not left paying an unaffordable share for maintaining the whole gas network.
“Addressing the broader issues in the gas sector requires a comprehensive policy response,” French says.
“While some jurisdictions such as Victoria and the ACT have come a long way, we are calling on all governments to ensure Australian homes and small businesses can transition off the gas network in a fair and orderly way, especially by stopping new gas connections for households and providing support for electrification.”
