Senate proposals could increase risk and energy bills

The peak national body for Australia’s energy networks claims a new Senate Inquiry report may see higher energy costs for consumers as well as increased regulatory risk.

The Energy Networks Association (ENA), which represents gas distribution and electricity network businesses, says a Senate Committee’s Interim Report on performance and management of electricity network companies recommends an expert review of regulation to allow network assets to be written down, but provides no analysis of the costs and benefits to consumers of the higher risk regulatory framework.

“Evidence continues to show regulatory risk is the number one concern for energy investors in Australia - and sovereign risk is becoming an increasing focus,” said John Bradley, the CEO of ENA.

“These proposals come when the regulator has not even finished its first round of reviews under the new regime, and the inquiry itself noted there have been 17 different reviews of energy network regulation since 2010.”

Economic analysis had apparently shown a regime which allowed regulatory asset writedowns would produce higher energy bills.

“The Senate committee - including the Australian Greens dissenting report - acknowledges that introducing writedown risks will increase the cost of finance, which represents over half the network bill to consumers,” said Bradley.

“Economic analysis released last year showed that, rather than saving money, consumers could pay over $320 million more per year if network investors faced new risks of writedowns. Even extremely large asset writedowns would not achieve price reductions for consumers, who would pay higher bills in all scenarios, as the cost of finance would soar to levels not seen since the GFC.”

Bradley said some claims that 40% of the NSW distribution network ($9 billion) could be written off were a “bizarre hoax” at the expense of taxpayers.

“These numbers are not only unjustified by any assessment of how assets are currently being used - it is completely circular for taxpayers who are also electricity users.”

Credit rating agencies such as Standard & Poors are currently watching the regulatory risk of the network sector closely and have warned that even a ‘voluntary’ writedown by the NSW Government would increase the risk of the sector elsewhere.

“We welcome the support of the Senate Committee for fairer and more efficient electricity tariffs in Australia, which reward customers who use energy efficiently,” Bradley said.

“Energy networks also support the recommendation to accelerate the current review of the Demand Management Incentive Scheme, to increase the use of demand management where it makes sense.”

Bradley said recommendations to streamline the rule-making process and the role of energy market institutions could be addressed in the Energy Market Governance Review that is already underway.