AER issues draft determinations for Victorian electricity distributors

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The Australian Energy Regulator (AER) has released the draft revenue determinations for Victoria’s five electricity distribution businesses, AusNet ServicesCitiPowerJemenaPowercor and United Energy, for 2021-26.

AER Chair Clare Savage said the draft determinations, which are out for consultation, enable energy businesses to support key initiatives as efficiently as possible including replacing ageing infrastructure, bushfire safety measures and the Victorian Government’s Solar Homes Program.

“We saw all businesses lift their game in engaging with their consumers and we know from their engagement that affordability is the biggest concern for people who pay the bill,” she said.

“AusNet Services in particular used an innovative consumer engagement program called NewReg to capture consumer preferences and this was evidenced in its proposal.

“As a result, AusNet Services proposed much lower capital expenditure than what it spent previously and the proposal overall represented good value for consumers and this is reflected in our draft determination.

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“Jemena also proposed capital expenditure that provided value for money for consumers with support from its consumer engagement. However, we have concerns with Jemena’s proposed operating expenditure and used our draft decision to reduce it to an efficient level in line with industry benchmarks.

“Powercor has important safety issues to address including wooden pole replacement in bushfire prone areas. Based on our analysis of the information provided, our draft determination allows sufficient revenue for necessary pole replacement to ensure safe and reliable supply to their consumers.

“CitiPower proposed a very significant increase in pole replacement expenditure, but our assessment indicated that their network faces much lower risks than Powercor and therefore we accepted only a moderate increase.

“We welcome the leadership United Energy has shown on demand management programs as a viable alternative to network expenditure. But our draft determination also recognises that these initiatives can continue to be funded without additional operating expenditure.

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“All of the draft determinations provide sufficient revenue to support integration of renewable energy. This is important with more households installing solar panels as the Victorian Government’s Solar Homes Program ramps up.”

Across the five businesses, the AER’s draft determinations allow lower revenues than for the previous regulatory period. Elements of the draft determinations are likely to change in the final decision due to factors including the economic impact of COVID-19, the AER’s review of inflation, changes to the rate of return, responses from public consultation and the businesses’ revised proposals.

“We are inviting submissions on the draft decisions and will hold an online public forum on 15 October 2020,” Ms Savage said.

The draft decisions are based on the Victorian Government’s intention that the next regulatory period for the Victorian businesses starts in July 2021, aligning with other states and territories.

 Revenue 2021-26($ nominal)*Revenue drop from 2016-20 (in real terms)%Distribution charges 2021-22 vs 2020 (household, includes metering)Distribution charges 2021-22 vs 2020 (small business, includes metering)
AusNet Services Eastern Victoria: Melbourne to the NSW border$3.259 billion– 5.6-$6 (-0.3%)-$85 (-1.1%)
CitiPower
Melbourne CBD and inner suburbs
$1.425 billion-12.5-$60 (-3.9%)-$219 (-3.7%)
Jemena
North-west Melbourne
$1.273 billion-10-$61 (-3.8%)-$221 (-3.5%)
Powercor
Western Victoria: Melbourne to SA border
$3.242 billion-7.9-$55 (-3.5%)-$200 (-3.4%)
United Energy
Melbourne’s east and south-east, Mornington Peninsula
$1.967 billion-13.9-$75 (-4.7%)-$350 (-5.4%)

*These figures are based on the draft decisions and will be subject to review through the consultation period and are likely to change in the final determination.