Reliability, safety and security of ACT electricity supply at risk following unprecedented AER draft decision

Canfan 27 November 2014 1

The Australian Energy Regulator (AER) has today released a draft decision drastically reducing and backdating expenditure allowed on the ACT’s electricity distribution network for the period 1 July 2014 to 30 June 2019.

ActewAGL Chief Executive Officer Michael Costello said, “This decision does not make sense. ActewAGL currently has the cheapest and most reliable network in regards to unplanned blackouts in Australia and yet the AER decision says we’re less efficient than other utilities.

“We expected a modest reduction in our revenue allowance given the downward movements in financial market conditions since we submitted our proposal in June. But a cut to our revenue of 28% (a reduction of $300 million over five years/ $60 million per year) is unfathomable.

“This revenue reduction is based on unprecedented and excessive cuts of 42% (a reduction of $160 million over five years) to our operating expenditure and 34% (a reduction of $128 million over five years) to our capital expenditure. All of these cuts will have a significant impact on our customers and staff.

“This decision is to be backdated to 1 July 2014, and in addition there will be major restructuring costs to implement. However, the AER has not taken into account any of these costs so the effective cut to our operating expenditure is more like 61% from next year onwards. This has to change.

“The AER has primarily based its draft decision to cut operating costs on highly questionable statistical analysis comparing ActewAGL to other network businesses. This analysis is based on data for Australian distribution companies that the AER’s benchmarking consultants have said leads to results that are “unstable and unreliable”. Furthermore, the analysis has been subject to a flawed consultation process. The way the AER proposes to use the results is reckless and simply not fit for this regulatory purpose.

“The proposed cuts to our operating expenditure will result in a reduction of $1.60 per week for a typical Canberra resident that uses 7,000 kWh of electricity per annum. This is a small amount of saving compared to the major impact the cuts will have on the reliability, safety and security of ACT electricity distribution network.

“Our customers currently receive the most reliable and cheapest electricity service in Australia and we are extremely concerned the AER’s draft decision won’t allow us to operate and maintain our network to ensure we continue to deliver a highly reliable and secure electricity supply to 177,000 homes and businesses.

“Our customers have consistently told us they don’t want lower prices if this means lower levels of service and electricity supply reliability.

“The draft decision will also put at risk our ability to provide for Canberra’s future energy needs as our city continues to grow. Cuts to capital expenditure will seriously impact our project work including construction of a new Zone substation at Molonglo and important asset replacement programs such as aging underground cables.

“The AER’s decision is also an insult to the hard working men and women of ActewAGL by telling us we’ve been operating so inefficiently. This decision will result in a very large reduction in staff numbers across all levels of the Networks and Corporate Services areas.

“We reject the AER draft decision and will respond constructively through the regulatory process so that the AER is able to make a final decision in the long-term interest of ActewAGL’s customers and staff, enabling us to deliver what they have told us they want – a safe and reliable network.

“Otherwise we will have no choice but to contest the final decision using the established review processes including the Federal Court and the Competition Tribunal to get the right outcome for our customers and our staff.”

(ActewAGL Media Release)

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One Response to Reliability, safety and security of ACT electricity supply at risk following unprecedented AER draft decision
mcs mcs 10:23 pm 27 Nov 14

The benchmarking in that report is pretty stark…. ACTEWAGL’s efficiency is a long way behind other energy companies, that have to deal with much larger networks spread over far greater geographical areas.

Clearly, they aren’t doing things as well as they should in terms of being efficient. The excuse that ‘we are already cheapest’ doesn’t wash if they are doing it inefficiently.

And I highly doubt that ““Our customers have consistently told us they don’t want lower prices if this means lower levels of service and electricity supply reliability.” Do ACTEWAGL actually go out to the community and ask that question? I wouldn’t have thought they did.

Clearly, its a big hit to take in one go, but it sounds like they need a big ‘stick’ to make it a central issue, as it clearly should be – and this might just be that stick.

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