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NSW electricity prices: more falls on the horizon

Electricity prices have risen steeply for NSW energy users of all sorts over the past five years. Some of that was from the former carbon tax, the removal of which has lowered many bills over the past six months.

But most of the rise was due to surging operational and capital costs among NSW’s publicly owned electricity networks – the businesses that build and run the poles and wires that carry power from generators to users. New decisions by the regulator mean that these costs could now start to fall in NSW – and similar decisions are coming up for other states.

The networks are regulated regional monopolies, and the Australian Energy Regulator decides every few years how much they can earn or charge customers. Past decisions – and successful appeals by the networks – allowed a huge rise in capital spending, which is now widely seen to have been excessive compared to actual needs.

The rules applied by the AER have been changed in response to campaigning by Ai Group and others. The draft determinations issued by the AER at the end of November are the first to be made under the new rules – and if applied they would cut the revenue of the networks by more than 30% compared to the initial proposal.

Elec_Network_Revenue

A revenue cut on that scale would reverse some of the increase in electricity costs of recent years, saving households around 10%; the savings for business would depend heavily on individual usage characteristics.

But it isn’t locked in yet: the networks will put forward revised proposals in coming months, making the case that they need more revenue to guarantee reliable electricity supply. ‘Final’ decisions from the AER will come in 2015, but based on past experience these will be appealed through the courts. It will be a while before we know just how large the savings to energy users will be.

NSW is just the first cab off the rank; new determinations for Queensland, Victoria, South Australia and Tasmania will follow over the next 18 months. While privatised Victoria has seen smaller increases in network costs than in Queensland and NSW, the new attitude from the AER suggests we’ll see a tough attitude to costs in all regions. Watch this space.

By Tennant Reed
Tennant ReedTennant is Principal National Adviser – Public Policy at Ai Group. He has worked heavily on climate and energy issues, advising Ai Group’s Leaders’ Group on Energy and Climate Policy and developing reports on natural gas supply, energy prices and energy efficiency. He also works on a range of issues related to manufacturing and innovation. Previously he was an adviser in the Department of Prime Minister and Cabinet, working on fiscal policy, stimulus and infrastructure.

Published - 04/12/14

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