AER Electricity Network Price Determination and Tariff Structure Statements Update - January 2016

The AER sets the amount of revenue that network businesses can recover from customers using the electricity networks in the NEM (QLD, NSW, SA, ACT, VIC and TAS). The revenue component affects the distribution component of a customer's electricity bill. The network businesses periodically apply to the AER to assess their forecast expenditure and revenue requirements (typically, every 5 years). In 2015 the AER issued:

  • final determinations for distribution networks in QLD, NSW, the ACT and SA
  • preliminary decisions for the Victorian distribution businesses for regulatory periods commencing 1 Jan 2016.

These determinations are summarised below.

QUEENSLAND

Energex

Region: Brisbane, Gold Coast, Sunshine Coast, Ipswich

Final Determination: 29 October 2015

Period: FY 2015/16 to 2019/20

Allowable Revenue $M (nominal) % change
2015-16 $1,768.4  
2016-17 $1,701.6 -3.8%
2017-18 $1,638.8 -3.7%
2018-19 $1,590.4 -2.9%
2019-20 $1,557.7 -2.1%

Comment: Turning point for Queensland electricity prices which have consistently increased since 2004 due to rising costs of investment and operating costs of electricity networks in Queensland.

Ergon Energy

Region: FNQ, Western Queensland, all areas outside SE Queensland

Final Determination: 29 October 2015

Period: FY 2015/16 to 2019/20

Allowable Revenue $M (nominal) % change
2015-16 $1,558.3  
2016-17 $1,484.2 -4.8%
2017-18 $1,449.4 -2.3%
2018-19 $1,451.0 +0.1%
2019-20 $1,456.8 +0.4%

Comment: Queensland Governmentt uniform tariff policy requires retail prices in Ergon distribution area to match those in Energex distribution area.

NEW SOUTH WALES

Ausgrid

Region: Sydney, Central Coast, Newcastle, Hunter region

Final Determination: 30 April 2015

Period: FY 2014/15 to 2018/19

Allowable Revenue $M (nominal) % change
2014-15 $2,208.8  
2015-16 $1,693.2 -23.3%
2016-17 $1,637.1 -3.3%
2017-18 $1,627.7 -0.5%
2018-19 $1,618.4 -0.6%

Comment: Ausgrid awaiting Australian Competition Tribunal and Federal Court decisions regarding a review of the determination which was expected by end of 2015 but has been delayed by up to 3 months. In dispute are the cuts to operating expenditure (25%) and capital expenditure (15%) which has forced Ausgrid to make 550 positions redundant and possibly 500 more redundancies depending on tribunal outcome. Outstanding decision may impact value on company as it is put up for privatisation.

Essential Energy

Region: Regional NSW

Final Determination: 30 April 2015

Period: FY 2014/15 to 2018/19

Allowable Revenue $M (nominal) % change
2014-15 $1291.7  
2015-16 $911.3 -29.4%
2016-17 $937.7 +2.4%
2017-18 $969.6 +3.4%
2018-19 $1,007.5 +3.8%

Comment: Essential have also applied to have the determination reviewed by the ACT and Federal Court and are awaiting a decision.

Endeavour Energy

Region: Sydney Greater Western region, Blue Mountains, Southern Highlands, Illawara, South Coast NSW

Final Determination: 30 April 2015

Period: FY 2014/15 to 2018/19

Allowable Revenue $M (nominal) % change
2014-15 $949.5  
2015-16 $804.0 -15.3%
2016-17 $798.5 -0.7%
2017-18 $792.9 -0.7%
2018-19 $787.5 -0.7%

Comment: Endeavour have also applied to have the determination reviewed by the ACT and Federal Court and are awaiting a decision.

AUSTRALIA CAPITAL TERRITORY

ActewAGL

Region: ACT

Final Determination: 30 April 2015

Period: FY 2014/15 to 2018/19

Allowable Revenue $M (nominal) % change
2014-15 $173.2  
2015-16 $145.7 -15.9%
2016-17 $146.9 +0.8%
2017-18 $148.4 -0.5%
2018-19 $149.8 -0.6%

Comment: ActewAGL have also applied to have the determination reviewed by the ACT and Federal Court and are awaiting a decision.

SOUTH AUSTRALIA

SA Power Networks

Region: South Australia

Final Determination: 29 Oct 2015

Period: FY 2015/16 to 2019/20

Allowable Revenue $M (nominal) % change
2015-16 $682.0  
2016-17 $748.2 +9.8%
2017-18 $774.5 +3.5%
2018-19 $801.9 +3.5%
2019-20 $830.9 +3.5%

Comment: Based on AER forecast that maximum demand will remain reasonably flat over the 2015-2020 period reducing the requirement for capital expenditure.

VICTORIA

It is important to note that the AER have only issued preliminary not final determinations for Victorian network providers. In reply to the preliminary determinations made in Oct 2015 the Victorian network providers submitted counter proposals for the AER to consider in Jan 2016. It is expected that a final decision will be made by the AER by the end of April 2016. Whilst the annual allowable revenue may be adjusted in the final determination it is expected the annual percentage change will not vary significantly based on the experience of other network providers in the states where final determinations were made in 2015.

AusNet Services (SP AusNet)

Region: Eastern region of Victoria

Final Determination: 29 Oct 2015

Period: CAL 2016 - 2020

Allowable Revenue $M (nominal) % change
2016 $586.0 -5.8%
2017 $551.9 -6.2%
2018 $565.7 +2.5%
2019 $579.9 +2.5%
2020 $594.4 +2.5%

Comment: Smart meter roll out almost complete which means less capital expenditure allowed for this but aging assets means replacement expenditure requirements will be higher than previous period 2011-2015. Allowances also made in capital expenditure for new safety requirements resulting from recommendations of 2009 Victorian Bushfire Commission.

Citipower

Region: CBD and Urban parts of Melbourne

Final Determination: 29 Oct 2015

Period: CAL 2016 - 2020

Allowable Revenue $M (nominal) % change
2016 $282.9 -4.4%
2017 $270.4 -4.4%
2018 $278.4 +3.0%
2019 $286.6 +3.0%
2020 $295.1 +3.0%

Comment: See AusNet Services (SP AusNet) comment.

Powercor

Region: Western region of Victoria

Final Determination: 29 Oct 2015

Period: CAL 2016 - 2020

Allowable Revenue $M (nominal) % change
2016 $621.8 -5.7%
2017 $586.6 -5.7%
2018 $605.8 +3.3%
2019 $625.6 +3.3%
2020 $646.0 +3.3%

Comment: See AusNet Services (SP AusNet) comment.

United Energy

Region: South East suburbs of Melbourne

Final Determination: 29 Oct 2015

Period: CAL 2016 - 2020

Allowable Revenue $M (nominal) % change
2016 $375.1 -6.4%
2017 $350.9 -6.9%
2018 $359.7 +2.5%
2019 $368.7 +2.5%
2020 $377.9 +2.5%

Comment: See AusNet Services (SP AusNet) comment.

Jemena

Region: North West Melbourne

Final Determination: 29 Oct 2015

Period: CAL 2016 - 2020

Allowable Revenue $M (nominal) % change
2016 $238.5 -6.9%
2017 $223.7 -6.2%
2018 $226.3 +1.2%
2019 $233.4 +3.1%
2020 $240.8 +3.1%

Comment: See AusNet Services (SP AusNet) comment.

AEMC Tariff Structure Review Update

In November 2014 the AEMC determined that distribution businesses must move towards tariff structures that better reflect the efficient costs of providing network services to consumers. Technological innovations are allowing consumers to be more active participants as producers (through self generation) and customers (seeking tailored products). As such the AER is adapting by allowing competitive markets to be more transparent and allowing choice and innovation whilst still maintaining consumer protection through the regulatory framework.

Victorian distributors were required to submit tariff proposals to the AER in late 2015 with the approved tariff structures taking effect 1 Jan 2017. Other states will follow with their proposals in 2016.

The proposals put forward by Victorian network providers Jemena, Citipower, Powercor, United Energy and AusNet all advocate changes to their tariff structures for residential and small business customers.

Current tariff structures may not necessarily signal costs to consumers of electricity use during peak times with some tariffs currently only based on total usage. Those who use electricity at peak times will pay for it under the new structures, at rates that better reflect the impact their high use places on delivering electricity at those peak times. Proposed changes consolidate and simplify existing tariffs by including a charge for maximum demand as well as usage. Capacity management at peak times is a key driver for investment by the networks and the proposed tariff structures will allow network providers to manage capacity more accurately by time and location.

From a residential and small business customer perspective incorporating a demand based component into the tariff structure for will allow them to have more control and manage their demand through demand side initiatives such as choice of appliances, electricity plans better suited to usage patterns and use of emerging technologies such as electric vehicles, batteries and solar panels.

Residential and small business customers who have a relatively flat or steady demand profile are expected to benefit most from the changes. Customers who have peaky or fluctuating demand are expected to see higher electricity charges assuming they do not alter usage patterns. The actual impact varies depending on the network provider and how they propose to manage the transition to the new tariffs.

At this stage the Victorian distributors have not proposed any changes to tariff structures for large customers where demand based charges are generally already in place.

Source: www.aer.gov.au, Network Determinations, Tariff Structure Statement Proposals.
Key Energy & Resources hold AFSL 281356. Advice contained herein is general in nature and been simplified to avoid confusion. It is not specific advice. Further personal advice should be sought from a qualified consultant before making decisions based on information contained herein.


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