Spending cuts to ease gas prices

Hard on the heels of public criticism of overspending on electricity networks, spending on Victoria's gas distribution network has been slashed by $1.1 billion - a 26 per cent cut - over the next five years, which might help offset the pressure of rising 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.