The Australian Competition Tribunal has handed down its decisions on the limited merits review of the Australian Energy Regulator’s April and June 2015 electricity and gas revenue decisions in New South Wales and the Australian Capital Territory.
These appeals were brought by the NSW and ACT electricity and gas distribution network businesses seeking greater revenue to be recovered from customers through electricity and gas bills. The Public Interest Advocacy Centre (PIAC) also appealed the AER’s decisions seeking lower revenues to be recovered from customers.
The Tribunal has determined that it is in the long term interests of consumers of electricity and gas to set aside the AER’s decisions and have the AER make them again. The impact on the suppliers’ revenues, and resulting price changes will not be known until the AER remakes its decisions.
The Tribunal found in favour of the regulated suppliers on some issues and in favour of the AER on others.
The most significant finding for the suppliers is that when the AER decides the suppliers’ operating expenses (opex) allowances again, it is to use a broader range of modelling and bench marking against Australian businesses and include a “bottom up” review of their forecast opex. The suppliers’ challenges to the AER’s allowances for their returns on debt, the value it set for gamma and ActewAGL’s Service Target Performance Incentive Schemes allowance were also upheld.
AER Chair Paula Conboy said the AER has not yet had a chance to review the Tribunal’s decision in full, so at this stage it is too early to estimate the impact of the Tribunal’s decision on consumer bills.
“The Tribunal found we were correct to conclude that the electricity distribution businesses in NSW and the ACT were not operating as efficiently as other networks, so consumers were paying more than necessary for safe and reliable electricity and gas,” Ms Conboy said.
“Our April decisions did not accept the revenue proposals put forward by these businesses. Instead the AER determined how much revenue the businesses should be allowed to recover from consumers based on its assessment of the costs for an efficient network business to provide a safe and reliable service to customers.”
“The AER’s aim continues to be setting network revenues in the long term interests of consumers as required under the National Electricity Law. With that aim in mind, we are now looking at the Tribunal’s decisions in these large and complex revenue determinations to identify what happens next,” Ms Conboy said.
“We are considering the implications the Tribunal’s decisions will have both for the revenue that the businesses will be allowed to recover from consumers in NSW and ACT, and the prices those consumers will have to pay, as well as our processes for future determinations.”
Energy Networks Association (ENA) has welcomed the tribunal’s decisions and ENA CEO, John Bradley, said the decisions provide important clarification to the Australian Energy Regulator (AER), networks and other stakeholders about how the National Energy Laws and Rules should be applied to serve the long-term interests of consumers.
“Under the Law, the Tribunal can only amend an AER determination if it finds there is a ‘materially preferable’ decision that would deliver a better outcome for customers,” Mr Bradley said.
“Future decisions should be simpler because of these judgements and this is an important outcome for customers and all stakeholders.
”Merits review plays an important role in ensuring regulation delivers the right outcomes for customers, including ensuring safety, reliability and efficiency.”
The Tribunal has set aside a number of decisions relating to operating expenditure allowances, cost of debt, and company tax allowances and remitted the decisions back to the AER for redetermination.
The Tribunal has upheld the AER’s decisions on the estimation of the return on equity.
“Network businesses strongly support the use of economic bench marking as a tool to drive efficiencies provided the models are transparent, based on robust data, and the analysis is rigorous,” Mr Bradley said.
“This is particularly important when bench marking is used to set business-critical operating expenses.
“Importantly, the merits appeals took place under amended laws and rules that were revised to strengthen community confidence in the price setting framework delivering balanced results. The reforms have seen greater consumer participation in these reviews.”
