ActewAGL slugged again by the energy regulator

spark gap

THE Australian Energy Regulator has announced they want to make ActewAGL charge less for the electricity we use.

“The demand for electricity has fallen and is expected to remain reasonably flat over the 2015 to 2019 regulatory control period. This puts less strain on the network and requires less investment to provide a reliable supply of energy. This final determination reduces the spending proposal to ensure that only prudent and efficient costs are recovered from consumers.”

“The AER has not accepted the revenue allowances proposed by any of the ACT and NSW electricity businesses. In part, this is due to our decision to apply a lower rate of return and corporate tax allowance, consistent with our rate of return guideline and recent market trends,” Ms Conboy said.

“The perceptions of risk which increased during the global financial crisis, when the AER made its last determination, are now decreasing. This means that the lower cost of capital for debt and equity translate into the lower financing costs necessary to attract efficient investment.”

ActewAGL begs to differ:

“This decision will have a major impact on the organisation and will be a difficult time for the staff of ActewAGL. As I’ve said many times, we have the cheapest network charges and most reliable network when you compare unplanned blackouts across Australia.

“The AER’s decision on our operational expenditure has not moved considerably from its draft decision, and this is bad for ActewAGL and Canberra. Our view is that the business needs about $74m per year to provide a safe, secure and reliable electricity supply. The AER’s draft decision only provided for $44m per year and the final decision affords us a meagre increase to $48m per year, a shortfall of $26m per year.

“This 36% cut in our operating allowance will be a massive hit. In addition, the AER decision is to be backdated to 1 July 2014 and there will be major restructuring costs to implement. However, the AER has not taken into account any of these costs so the effective cut to our operating expenditure is much greater than 36%. This simply won’t allow us to operate and maintain our network to continue to deliver the most reliable electricity supply in Australia.

“The AER’s decision on capital expenditure is more realistic than the draft decision, and closer to what we asked for in our revised proposal. Over five years we asked for $341m, the AER’s draft decision was $240m and we got $311m. However, the AER did not approve funding for a major new substation to service the Molonglo development.

“For our customers the AER’s decision will result in a reduction of $1.97 per week for a typical Canberra household that uses 7,000 kWh of electricity per annum. About $1 of this reduction is due to the operating expenditure cuts. This is a small saving compared to the major impact the cuts will have on the reliability and security of the ACT electricity distribution network.

“Our customers have consistently told us they don’t want lower prices if this means lower levels of service and electricity supply reliability.

“Of huge concern to us is the impact it will have on reliability in terms of the number and duration of power outages. The recent storms in NSW (where distributors have also received harsh decisions from the AER that will cost jobs) highlight that when an emergency event such as this occurs you need every available resource on the ground working to get the power back on. Thousands of people are still off supply a week after the storms hit. If it’s taking this long to fix the damage with their current workforce, imagine how long it will take with a reduced workforce. Canberra residents have been used to minimal supply disruption when there have been power outages, even those resulting from emergency events like storms.

“When there is an outage they want us to fix it quickly and this decision will inhibit our ability to do so. That’s what we are facing in the ACT.

“We are now assessing what the decision means for the jobs of ActewAGL staff. We forecasted based on the AER draft decision in November that there would be 190 job losses – 140 in Networks and 50 in Corporate. But due to all the work we have already done to reduce costs in anticipation of a harsh regulatory decision by not filling vacant positions, the number of further job losses will still be substantial but less than anticipated.

“This decision will continue to place a strain on being able to deliver services safely, but I and the Board have assured ActewAGL employees that we won’t allow the AER’s decision to reduce levels of safety for them or the community. Other areas will also come under pressure e.g. reliability and returns to the owners.

“I said previously that if the final decision was as detrimental as the draft decision we would appeal the final decision through review mechanisms available to us. We are now evaluating the details in the final decision, and assessing the prospect of challenging the AER’s final decision at the Australian Competition Tribunal and the Federal Court.”

[Photo: “Искровой разряд” by Outcaster – Own work. Licensed under Public Domain via Wikimedia Commons.”]

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