Distribution networks achieve huge productivity improvements

Underneath view of an enormous transmission tower (energy prices down)
Image: Shutterstock

Australia’s electricity transmission and distribution networks achieved significant productivity improvements in 2016-17, helping put downward pressure on power bills, according to an Australian Energy Regulator’s (AER) benchmarking report.

AER board member Jim Cox said electricity distributors have improved productivity by more than two per cent over the past two years, outpacing the wider Australian economy, while productivity in transmission networks has improved by 2.8 per cent over the past two years, albeit from a lower base.

“This turnaround is good news for consumers as a long decline in distribution networks’ productivity since 2007 has contributed to rising electricity prices,” Mr Cox said.

“Distribution network costs typically account for between 30 and 40 per cent of what consumers pay for their electricity, which is why the AER has a strong focus on efficient spending by businesses in our revenue determinations.

“We know the primary driver of these productivity gains have come from networks reducing their costs to maintain and operate their networks while at the same time improving reliability.

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“Distributors are responding to the strong incentives we’ve put in place and are delivering good outcomes for consumers.”

Electricity distributors in NSW and Queensland are now catching up with the better performing distribution networks as a result of reform programs spurred by their response to the AER’s regulatory determinations.

Consumers in NSW alone have saved $1.1 billion over the 2014-19 period due to reductions in network operating costs. Importantly, these savings will continue to be passed through to consumers in the 2019-24 regulatory period.

“Transmission industry productivity improved by 5.8 per cent in 2017, the biggest productivity improvement over the last 12 years and the first industry increase overall since 2013,” Mr. Cox said.

The primary driver of improved productivity among transmission networks was a reduction in outages in 2017 compared to prior years.

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Energy Networks Australia CEO Andrew Dillon said these results, plus the fact network prices have been falling in every state across the national electricity market for the past three years is great news for customers.

“An increase in productivity means a business can produce the same or improved service to customers at a lower cost,” Mr Dillon said.

“The main driver of the productivity gains is networks finding ways to reduce their costs while still managing to enhance reliability for customers.

“When networks save money by improving productivity, customers get a bigger slice of the savings than the businesses do,” he said.

“Seventy per cent of any operating cost saving is given back to customers over time, so a more productive business means lower bills for customers.”

The announcement comes just days after the draft law Treasury Laws Amendment (Electricity Price Monitoring) Bill 2018 was announced, that aims to give the Treasurer the power to force divesture orders on energy retailers.

The Bill is a result of the Morrison Government’s push to drive electricity prices down for consumers under his Big Stick policy.

The AER’s benchmarking reports measure how productive and efficient electricity networks are at delivering energy to consumers over time and compared with their peers.

Read the full report here.

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