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Ausgrid Regulatory proposal 2019-24: Submission to the AER Issues Paper

Energy Consumers Australia considers that the long-term interests of consumers are served when current and future consumers pay no more than they need to for the services they prefer. We are looking to Ausgrid to adopt long-term strategies, and revenue proposals that align the interests of their shareholder with the interests of their customers. It is time that we move on from the adversarial processes of the past and move the consideration of these revenue proposals from the courts to the boardroom.

We appreciate the opportunity provided by the Australian Energy Regulator (AER) to respond to the Issues Paper. In this submission we are responding to the revenue proposal submitted by Ausgrid and the associated issues raised by the AER in its Issues Paper on the NSW electricity distribution determinations 2019-24.

We understand that the final outcome for consumers of Ausgrid’s 2019-24 proposal, when combined with the return of revenue to consumers from the remaking of the 2014-9 decisions by the AER, is expected to be decreases in real terms in average annual network prices for households and small businesses. Further, we expect that the application of the 2018 Rate of Return Guideline (which is currently under review) could put further downward pressure on network prices charged by Ausgrid.

In our view there remain significant outstanding issues with the Ausgrid proposal, in particular significant capital expenditures and a worsening of capacity utilisation, combined with a significant regulatory asset base of over $16 billion at the end of the period, which if accepted would lead to poorer outcomes for consumers.

We consider that Ausgrid’s approach in its proposal is one of risk avoidance by building and replacing primary assets and not one of risk management where there is a combination of primary asset works, secondary systems and operational measures that can manage the risk for a much lower total cost to customers.

While the revenue proposal as submitted foreshadows real price reductions, we are not convinced on the information made available to us that the expenditures are warranted or that the price reductions are sufficient.

Energy Consumers Australia has not been able to obtain the necessary assurance from Ausgrid about a number of matters that are core to demonstrating that Ausgrid’s proposal is consistent with the regulatory framework – particularly the requirement in the National Electricity Law to comply with the National Electricity Objective, including ensuring that regulatory proposals are in the long-term interests of consumers.

Given the matters that are unresolved, and based on our thorough review of the proposal and the expert advice provided to us, we consider that the AER would be justified and should determine an allowed revenue for the period 2019-24 that is $1 billion lower than the proposal submitted by Ausgrid of $7,971.9 million.

The full submission can be read here.

Additional work was commissioned by Energy Consumers Australia regarding this proposal, and it can be read here.

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