Gas suppliers' profits up, new pipes down
Australian Energy Regulator chairman Andrew Reeves, reviewing the performance of Victoria's gas suppliers, said customers of Envestra and Multinet had experienced "an increase in repeated and lengthy interruptions".
"Multinet and Envestra have spent less capital expenditure than the amount that has been funded by customers over the period," he said, since both had failed to replace old parts of the network that they said they would. The old sections are more prone to leaking.
All three gas suppliers are earning "substantially more returns on assets than forecast", he said.
In total, between 2009 and 2011 the gas companies pocketed an extra $120 million in earnings, primarily by underspending on upgrades.
Multinet supplies about 660,000 customers, mostly in Melbourne's inner and outer east, extending to the Yarra Ranges and South Gippsland. Envestra has about 600,000 customers in Victoria, in Melbourne's outer eastern suburbs, but also including Albury-Wodonga in the north and Sale in the east.
Envestra's pretax return on capital of 8.2 per cent was well ahead of the forecast 7 per cent, with Multinet's return of 8.9 per cent better than the 7.9 per cent forecast. The Singapore-controlled SP AusNet was the most profitable, with a margin of 9.2 per cent, well ahead of the 7.8 per cent forecast.
Envestra was the poorest performer in replacing ageing low-pressure mains with high-pressure mains, renewing only about half of the pipes it targeted. Multinet only replaced about 60 per cent, the review found.
Envestra did not respond when asked about the criticism. Multinet said there were "material errors" in the report, which it would pursue with the regulator.
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The AER, led by chairman Andrew Reeves, found that Envestra and Multinet had spent less on capital expenditure than the amounts funded by customers. That underspending on network upgrades meant they failed to replace old parts of the network, which the AER said contributed to an increase in repeated and lengthy supply interruptions for customers.
According to the AER review, the three gas companies together pocketed an extra $120 million in earnings between 2009 and 2011, primarily by underspending on network upgrades that customers had funded.
The review showed all three suppliers earned substantially better returns than forecast: Envestra's pretax return on capital was 8.2% versus a 7.0% forecast, Multinet posted 8.9% versus a 7.9% forecast, and Singapore-controlled SP AusNet had the highest margin at 9.2% against a 7.8% forecast.
The review found Envestra replaced only about half of the low-pressure mains it had targeted, while Multinet replaced roughly 60% of its targeted pipes — short of the companies' original plans to renew ageing infrastructure.
Multinet supplies about 660,000 customers, mainly in Melbourne's inner and outer east and extending to the Yarra Ranges and South Gippsland. Envestra serves about 600,000 Victorian customers, including Melbourne's outer eastern suburbs and regional areas such as Albury-Wodonga and Sale.
Envestra did not respond when asked about the criticism. Multinet said the review contained 'material errors' and stated it would pursue those points with the regulator.
Underspending mattered because it helped the companies earn higher-than-expected returns (boosting near-term profits) while the regulator says it contributed to more frequent and longer supply interruptions for customers. For investors, that combination can bring regulatory scrutiny, public criticism and reputational risk—all factors investors commonly track.
Investors should watch for follow-up actions by the AER and the companies' formal responses. The review already prompted Multinet to dispute the findings, and the AER's criticism highlights regulatory scrutiny of capital expenditure, replacement programs and service reliability—areas likely to influence future reporting and regulator-company engagement.
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