Gas suppliers' profits up, new pipes down

Two of Victoria's three gas suppliers, Envestra and Multinet, have been criticised for higher-than-expected profits as a result of underspending on network upgrades, prompting more supply disruptions.

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.