Regulator demands halt to power spend
- From: The Australian
- June 21, 2011
THE nation's top energy regulator is demanding an overhaul of the rules used to set power company tariffs to shield consumers from price gouging.
As concerns grow about cost of living pressures, Australian Energy Regulator chairman Andrew Reeves said the rules he used to set charges for electricity networks -- which make up about half of a power bill -- had to change.
These charges have been the biggest driver of soaring energy prices in the past three years, particularly in NSW and Queensland.
Addressing a conference of the Energy Users Association of Australia, Mr Reeves said changes were needed to protect customers from "inefficient, excessive" spending by the networks.
His comments echo concerns raised by Julia Gillard's climate change adviser Ross Garnaut, who has said the regulatory arrangement created an "enormous incentive for over-investment" that was passed on to consumers.
A recent EUAA report found the government-owned electricity networks in NSW and Queensland were charging almost twice as much as privately owned operators in Victoria.
The networks deliver windfall profits to state governments that raid them for dividends at the expense of consumers.
Mr Reeves said there was a "systematic bias towards inflated forecasts" of the capital and operating spending the networks needed to make when their tariffs were set.
At present, businesses propose what they need to spend but they give such copious engineering detail that it puts a "substantial burden" on the regulator.
The regime requires the regulator to green-light reasonable spending, but this provided an incentive for companies to propose "the upper end of the range of reasonable estimates", a process biased towards businesses. As well, overspending was rolled into the value of the energy network assets, in turn inflating prices.
This had led to "significant step changes in prices for consumers" and should be scrapped, Mr Reeves said.
Also, there appeared to be too low a hurdle to trigger appeals of the regulator's decision.
Mr Reeves said the rules had been set in 2006 when there were fears about inadequate investment in critical infrastructure.
Last night, Ausgrid managing director George Maltabarow hit back, saying the AER was not accountable when a major substation failed and customers lost power. "It's a worrying trend when bureaucrats in Canberra think they have the better knowledge to run the country's electrical systems than the electrical engineers," Mr Maltabarow said.