Challenge to power price decision to delay privatisation

A key consumer group has warned the government might need to overhaul the way power prices are set, as the latest pricing decision in NSW is faced with further legal challenge, jeopardising planned price cuts and threatening to delay the Baird government’s power privatisation.

On Thursday, the Australian Energy Regulator (AER) sought a judicial review of a decision late in February by the Australian Competition Tribunal that had set the scene for planned price cuts of about $300 to the annual household power bill to be unwound. The legal challenge is set to take several months to resolve.

However, Energy Consumers Australia, the consumer representative body established by the federal and state governments, says the competition tribunal’s rejection of planned price cuts is “inconsistent”.

“The decision of the Australian Competition Tribunal did not reflect its obligation to make a decision that was materially preferable as a whole in the long-term interests of energy consumers,” Energy Consumers Australia head Rosemary Sinclair said, as reported by The Sydney Morning Herald.

“The tribunal’s decision is, without doubt, inconsistent with the new rules.”

In February the tribunal threw out a decision by the AER that would have resulted in reductions of up to $300 a year to the household electricity bill, deciding the regulator had erred in its calculations and telling it to go back to the drawing board and remake its decision.

“The AER’s aim is to set network revenues in the long-term interests of consumers. We have decided to seek a review of the tribunal’s decisions,” AER chairwoman Paula Conboy said when deciding to challenge the tribunal’s rejection of its price cuts.

“We will be asking the court to consider whether the grounds of review were properly established by the network businesses and whether these were correctly applied by the tribunal.”

The wrangling over the way power prices are set in NSW are being followed by electricity companies in all other states, since the NSW pricing is the first under the new rules, which was aimed at limiting legal challenges and the gaming of the system by electricity companies.

The AER’s ruling to impose price cuts was challenged from the outset by power companies such as Ausgrid and Endeavour Energy, which said the regulator was forcing them to reduce spending, which would hurt power reliability and result in large reductions to their workforces. The NSW government is seeking to sell Ausgrid, along with a controlling stake in Endeavour Energy.

Bidding for Ausgrid is already well advanced. However, the extended delay in resolving the prices to be charged by the electricity distributors threatens to delay the conclusion of the sale, as well as having an adverse impact on the amount the government will receive from any sale.

Ms Conboy said the regulator would continue to consult stakeholders about how the original pricing decision should be implemented, “in order to maximise certainty and stability while the judicial review is under way”.

“This includes how prices should be set from 1 July, 2016, and until new decisions are made,” she said.

Any legal challenge can be based only on claimed “error of fact, incorrect exercise of discretion, or unreasonableness” by the regulator.

How long the legal challenge will take is unclear, but since it is to go to a full court hearing, it is likely to take several months, sources close to the challenge have indicated.

– The Sydney Morning Herald