Victory for NSW electricity companies in Federal Court ruling

The Federal Court handed down a major decision today in a long-running case that is expected to increase electricity prices for New South Wales customers by around $3 billion.

The Federal Court has upheld the Australian Competition Tribunal decision to set aside key aspects of the Australian Energy Regulator’s (AER) original 2014-2019 revenue determination for NSW and ACT Networks.

While the ruling is a win for NSW electricity grid companies, the Australian Energy Regulator described the decision as “disappointing” for NSW and ACT electricity and gas customers.

The original AER determinations of the revenue that could collect from customers to operate their networks were made in 2015 and have been the subject of appeal to the Australian Competition Tribunal and the Full Federal Court.

The Federal Court has upheld the AER’s appeal in relation to the Tribunal’s decision on the cost of corporate income tax, but also upheld the Australian Competition Tribunal’s findings in relation to the networks’ operating expenses and the cost of debt.

“While we welcome the Court’s decision regarding corporate income tax, this decision is disappointing for NSW and ACT electricity and gas customers overall,” AER chair Paula Conboy said.

“It may also have implications for customers in other states.

“Our 2015 decisions set lower revenues than proposed by the network businesses in NSW and ACT, partly because we concluded that costs above efficient levels should be funded by the network owners, not customers.”

Energy Minister Josh Frydenberg said the decision “reaffirms the Turnbull Government’s position of wanting to abolish the Limited Merits Review (LMR) process to stop network businesses gaming the system”.

“The Federal Government has had a clear policy to reform the LMR process but states who own network assets like Queensland and New South Wales have stood in the way those reforms,” he said.

“By blocking attempts to stop network businesses gaming the system the Queensland and New South Wales governments have given a green light to higher electricity prices.”

Mr Frydenberg said the LMR process is the root cause the decision.

“The LMR process allows energy networks to contest decisions of the AER through the Australian Competition Tribunal by appealing how much they can re-coup from customers,” he said.

“Network businesses only appeal against the decision of the AER if they want to slug consumers more.”

Ausgrid said the decision would have a “minimal impact” on electricity prices for its customers.

“Pricing decisions are made on an annual basis and influenced by a number of factors, however, we estimate this decision may lead to a small increase for our customers of about 1.5 per cent, a year for five years,” a statement said.

“For our residential customers that’s about $11 a year for five years on their annual electricity bill.”

Endeavour Energy said its network charges for average residential usage would fall by around five per cent and average small business usage would fall by around four per cent in nominal terms from 1 July 2017.

“This pricing outcome will not change in light of the Federal Court’s decision today,” Endeavour Energy acting-CEO Rod Howard said.

“We remain committed to keeping downward pressure on network charges while delivering the safe and reliable electricity supply expected by customers.”