Is the AER about to give Baird an early Christmas present?

The energy regulator is set to announce a decision that will impact on moves to further privatise Australia’s electricity distribution network.

Who will wake in fright in the electricity delivery space on Thursday morning?

Will it be a handful of network businesses, a gaggle of politicians or thousands of business users and millions of power consumers in the mass market?

Thursday is when the Australian Energy Regulator will publish its draft decisions on the bids by the four distribution network service providers in New South Wales and the ACT for what they can spend from 2015 to 2019 and what they can recoup from power users.

Many billions of dollars in outlays are at stake.

Thursday’s decisions will be watched closely outside the NSW borders because the AER determinations will not only be pointers to how the watchdog proposes to play its cards for all the east coast’s networks, but also because, for the first time, the reviews will be benchmarking all the distribution businesses against each other.

The over-arching story of what the benchmarking, now completed, has found is no secret.

The AER’s chief executive, Michelle Groves, told a public forum in Melbourne in mid-October that the first go at comparing network efficiency shows that the best performers are in Victoria and South Australia (where they are all owned by the private sector).

The productivity gap between the privateers and those networks owned by governments, she said, is “not even that close.”

What is to be disclosed on Thursday is not only how big this gap is but also how the regulator proposes to treat the individual efficiency of the NSW distributors in allowing cost recovery from customers -- with conclusions inevitably to be drawn for the two large DBs in Queensland government hands, the next in line to be judged.

For the first time for them all, their efficiency is a factor in what money they can recoup.

And it needs to be said that benchmarking power businesses is a tricky and controversial business. There will be a lot of contention about how the AER has gone about this task and the quality of its measuring stick.

There will also be all sorts of repercussions from the benchmarking rock the regulator proposes to throw in the power pool.

Suppose the decision is to cut NSW network charges (for the first time in years) based on the contention that 3.3 million households should not be punished for the perceived performance failings of their electricity deliverers.

Apart from pleasing the consumers/voters in the run-up to the March state election, such a decision will challenge the attitude of the Labor opposition and the trade unions with respect to network privatisation.

How do you convincingly attack a new set-up where private sector ownership will deliver users a manifestly better deal in the future or defend the fact that you have denied consumers/voters such benefits to serve union self-interest over a period in which residential retail bills have nearly doubled?

Such an outcome from the AER would be Christmas come early for Mike Baird and his cabinet.

However, the smiling in the NSW treasurer’s offices might be a bit thin-lipped because such a decision would also affect potential network buyers’ views of the value of the two distribution businesses servicing the conurbation from Wollongong to Newcastle (the rural one is not to be privatised).

Reactions will be much the same across the Tweed River in Queensland -- where distributors Energex (holder of the franchise for the state’s south-east corner) and Ergon Energy (the other 97 per cent of a state bigger in area than Germany and France combined) will be the next cabs off the rank for AER judgment.

They are also proposed for privatisation after the 2015 state election.

As things stand, the NSW network firms are seeking approval to raise almost $22bn in revenue from some 3.2m households plus business customers between 2015 and 2019.

In round terms, this would be about $1.3bn more than was recouped in the five-year determination period now ending.

Meanwhile, the Queensland DB duo are looking for another $17bn or so in aggregate network charges over five years from 1.8m households plus businesses.

Privatised SA Power is also in the regulatory ring, seeking $4.4bn from a user base that includes 740,000 residential account-holders.

If your solar-powered calculator isn’t working, in aggregate this represents $43bn-plus out of the budgets of households and businesses over most of the rest of the decade.

How much falls on the residential sector?

Well, it accounted for 28.5 per cent of power consumed in NSW, Queensland and South Australia at the last assessment of demand.

Let’s say $15bn in round terms.

As every galah in the commentariat petshop knows by now, network charges are somewhere around 40 per cent (it varies) of final power bills.

So the decisions that the AER has made (and for which the several hundred page determinations per network business are now being prepared) are not small beer.

What follows next is a period of stakeholder consultation, an opportunity for the DBs to challenge the findings and a final decision early in the new year.

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