New rules to rein in price gouging by electricity operators
A series of changes in how electricity companies fix their spending plans are to be unveiled on Friday, aimed at tackling once and for all the "gold plating" of the electricity network - the reason for much of the surge in power prices over the past five years.
"Double dipping", inflated borrowing costs and the like have all been used to win approval for multibillion-dollar outlays by the networks, which have pushed electricity prices up steeply over the past few years, leading to a consumer-led backlash.
In the wake of mounting public criticism of the price gouging, the Australian Energy Regulator, an arm of the competition watchdog the Australian Competition and Consumer Commission, is putting forward a raft of new rules aimed at winding back inflated spending demands.
Previously, if electricity companies disagreed with the regulator challenging their spending plans, they took their complaint to the Australian Competition Tribunal and typically got their way. In the process, some companies have been able to "double dip" by winning approval to undertake the same upgrades twice, for example. In the future, unspent funds will be "repaid" to consumers and, if planned upgrades are completed more cheaply than flagged, then part of those savings will also flow through to consumers.
The new approach is also intended to force electricity companies to pursue non-spending options before seeking approval for spending to upgrade capacity by, for example, providing incentives to limit spending.
Following the financial crisis of 2007, interest rates rose worldwide, although subsequent rate declines have not been reflected in the spending approvals, which has helped to inflate electricity prices.
The new framework assumes the electricity networks refinance a portion of their borrowings regularly as they access cheaper debt options, with interest charges to be averaged over several years rather than taking the cost of borrowings at the start of the multi-year regulatory period for new spending.
A key change is to use so-called benchmarking, with the operating efficiencies of electricity distributors compared industry-wide to force lower cost approaches to be implemented.