John Bradley, August 2014

Jess Hill’s article (July) paints a picture of brazen exploitation of consumers by electricity networks, unchecked by regulators and actively encouraged by government owners.

This unbalanced article quotes 13 different individuals without a single alternative view from the industry that the article is about. It is a smear job unworthy of publication in the Monthly, alluding as it does to corruption inquiries in NSW as if they were relevant to network investment. 

It states that network proposals went unchallenged by the Australian Energy Regulator (AER) after it assumed responsibility from the states. In fact, public data suggest that the AER made significantly deeper cuts to operating costs, on average, than previous jurisdictional regulators. Decisions by the AER have reduced networks’ capital expenditure proposals by around 10% on average, with some receiving reductions of more than 25%.

The article falsely asserts, “The states had slipped in a rule declaring that the costs of network appeals were to be counted as ‘running costs’ and charged to customers through electricity bills.” Not only is there no such rule but it is also specifically prohibited by the national energy laws.

It is not the case that Australians pay “some of the highest prices in the developed world”. The most recent official international comparison shows Australian prices sit among the lower half of OECD economies, at number 20 out of 30, below the United Kingdom, New Zealand and Germany.

Since 2010, more than ten reviews have examined the operation of networks. The resulting changes, which networks support, are being implemented in the next round of decisions, and will benefit customers.

The article contains a claim by one consultant, Bruce Mountain, that “more than $20 billion … was wasted” in the last round of network investment. Mr Mountain has released no evidence of this and should be expected to do so.

Power prices are a critical issue in Australia, and there are key reforms that are needed to ensure we have an efficient energy system delivering value for consumers in a dynamic environment.

While the article may make for great drama, it is sadly divorced from reality or a factual reading of Australia’s network regulation.

John Bradley
Chief executive officer
Energy Networks Association

 

Jess Hill responds:

The Energy Networks Association has levelled many accusations at both me and the Monthly; I’ll just correct the most egregious.

Regarding the claim by the ENA that there was not a single alternative view from the industry, several calls were made to Networks NSW, the parent company for Ausgrid, but no response was received. TransGrid were more forthcoming in answering questions, and their responses were woven throughout the article.

The ENA accuses the article of falsely asserting that network appeal legal costs were borne by the customer. This is not a point for debate – it is simply true that appeal costs are considered part of “opex”, or operating costs. As Bruce Mountain clarifies, “these costs are opex, and included in the AER’s assessment of opex. In establishing opex allowances in subsequent control periods, the AER has not ever adjusted for the cost of appeals.”

As for the ENA’s reference to the “most recent official international comparison” that found Australian prices were in the lower half of OECD economies, I presume they are referring to analysis undertaken by the Bureau of Resource and Energy Economics in 2012. That study was based on data collected in 2010 that included excise and sales taxes. This distorts proper international comparison and is not accepted in standard analyses.