Spending cuts to ease gas prices
Following a lengthy review, the Australian Energy Regulator, an arm of the Australian Competition and Consumer Commission, on Friday signed off on planned spending on network upgrades, only days after it criticised key industry players for not spending approved amounts - and pocketing the difference.
"The ... decision will result in a slight reduction in rates charged by all businesses except Envestra," AER chairman Andrew Reeves said. "This reduction could translate to lower residential gas bills if passed on by the gas retail businesses."
For customers of Multinet, there will be no change in the network part of their gas bills, while SP AusNet's customers will enjoy a $5 decrease in each of the five years, as will APA GasNet customers. Envestra's Victorian customers face a $16-a-year rise.
One reason for the decline in planned spending is the reduction in interest rates, which has flowed through to the rate of return the AER permits the gas companies to make on their invested assets.
This rate has now been set at about 7 per cent, which is down from the return of about 8 per cent sought by the pipeline network operators. As the operators can now borrow funds more cheaply, the benefits would flow through to customers, the AER said.
There were also heavy cuts in planned spending across the board. Envestra was hardest hit, with its proposed spending cut to $444 million from $588 million, with spending by Multinet cut to $265 million from the $331 million proposed.
Earlier this week, the regulator criticised the companies for failing to spend approved amounts and pocketing the difference.
Frequently Asked Questions about this Article…
The AER completed a lengthy review and signed off on reduced planned spending for Victoria's gas distribution network — trimming total spending by $1.1 billion, or about 26%, over the next five years.
The cuts total $1.1 billion, equivalent to a 26 per cent reduction in planned expenditure, and apply over the next five years for Victoria's gas distribution network.
Customers of Multinet will see no change in the network part of their gas bills. SP AusNet and APA GasNet customers will each see a $5 reduction in the network component in each of the five years. Envestra's Victorian customers face a $16-a-year increase in their network charge.
One key reason was lower interest rates, which reduced the rate of return the AER permits the gas companies to earn. With borrowing costs down, the AER set the allowed rate of return at about 7%, down from the roughly 8% the pipeline operators had sought.
Not automatically. The AER said the reduction should result in a slight fall in rates charged by most businesses and could translate to lower residential gas bills — but that depends on whether gas retail businesses pass the savings on to customers.
Yes. The regulator criticised key industry players for failing to spend previously approved amounts and effectively pocketing the difference, and it flagged those concerns during the review.
Envestra's proposed spending was cut from $588 million to $444 million. Multinet's planned spending was cut from $331 million to $265 million.
A lower allowed rate of return (about 7% set by the AER versus around 8% sought) reflects cheaper borrowing costs for operators. The AER says that as operators can borrow more cheaply, those lower financing costs should flow through to customers in the form of slightly lower network rates — if retailers pass the savings on.
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