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SACOSS Welcomes AER Decision on SA Power Networks Proposal

SACOSS is extremely heartened by the AER SA Power Networks Draft Decision for 2015 – 20, having previously called for a minimum saving of at least $193 cut per customer.

“From the outset, SACOSS argued that SA Power Networks proposal was a misread of SA Power Networks’ role in the SA economy and their entitlement to a share of household budgets”, said Ross Womersley, SACOSS Executive Director.

“The AER Decision returns prices to pre GFC levels, which means there will be more households and small businesses with the capacity to pay electricity prices going forward.”

SACOSS Executive Director, Ross Womersley said,

“SACOSS believes a key issue for the Australian Energy Regulator is whether SA Power Network’s customers should be funding either unnecessary infrastructure investments and/or extreme levels of profits by SA Power Networks.”

“South Australian households have endured steep electricity price increases during the current 5-year regulatory period that have not been matched by increases in the community’s capacity to pay.”

“When we surveyed consumers about electricity prices, an overwhelming 93% of respondents wanted to see a reduction in the price of electricity.”

“SACOSS fully supports the Australian Energy Regulator taking the red pen to SAPN’s proposal and delivering real and lasting savings to South Australian electricity consumers. 

“Consumers and the business community right across SA will be very grateful but of course this is still only a preliminary decision and retailers will still need to pass this on. The rules weren’t really designed contemplating prices decreasing, so there is an element here where some retailers might try and exploit existing contracts that bind consumers to paying prices at last year’s levels.  We think that would be outrageous and can only hope all retailers quickly move to assure their customers that they will pass on the benefits of this decision in full, no matter what their existing contracts say.   No doubt SAPN will consider providing submissions arguing against the decision over the next few months, although we believe the new rules now mean that to do so could result a determination that is even more severe.

“This is an extremely complex area of advocacy and our work would not have been possible without funding from the Minister for Mineral Resources & Energy, Tom Koutsantonis MP.  It was this funding that enabled SACOSS to analyse and consider SAPN’s proposal and then build our case to the regulator on behalf of consumers that identified serious shortcomings.” Mr Womersley said.

SAPN charges for average residential consumers compared with minimum SACOSS proposal ($nominal, incl. GST)

Key Issues

  • SACOSS had calculated the impact of SAPN’s proposal on an average residential customer. Compared with the SACOSS proposal of at least a 25% reduction on SAPN’s revenue ask, SAPN’s proposal would cost the average customer an additional $193 on average per annum. Compared with the AER Draft Decision, SAPN’s proposal would cost the average customer an additional $197 on average per annum.
  • In 2012/13, SA Power Networks achieved a profit of about $710 per connection. This suggests a profit rate for SAPN of about 4 times its UK sibling. Underlying profit after tax for SAPN for 2013 & 2012 is over $360m on turnover of just over $1,100m in each year – this is over 30% of revenue.
  • SAPN proposed a nominal vanilla WACC of 6.84. An independent assessment of the WACC by the South Australian Centre for Economic Studies (SACES) commissioned by SACOSS proposed a WACC of 5.15. SACOSS proposed that the lower SACES estimate was a more accurate WACC estimate than that proposed by SAPN. The AER has proposed a WACC of 5.45 in its draft decision. The WACC can make up approximately 50 per cent of the revenue needs for a service provider and is a key element of the network charges that consumers pay.

Published Date: 

Thursday, 30 April 2015