AER Rate of Return "short-sighted": Energy Networks Australia

THE ENERGY Regulator’s decision to make material cuts to network returns by imposing a smaller Rate of Return is “disappointing” and “short-sighted” according to Energy Networks Australia CEO Andrew Dillon.
AER Rate of Return "short-sighted": Energy Networks Australia AER Rate of Return "short-sighted": Energy Networks Australia AER Rate of Return "short-sighted": Energy Networks Australia AER Rate of Return "short-sighted": Energy Networks Australia AER Rate of Return "short-sighted": Energy Networks Australia
Last year the Australian Energy Regulator was tasked with setting the new Rate of Return Instrument, a binding requirement for grid owners and network operators. 
 
The final decision on the Rate of Return was released by the AER today and Industry has been quick to lambast the new rate saying it won't lead to lower prices for consumers and could do more damage than good if investment falls any further. 
 
The Rate of Return will require network businesses to set the rate of return according to the Instrument in regulatory determinations over the next four years, a measure the AER says will reduce household bills by $30 to $40 a year and create "breathing space" for consumers struggling with high energy costs. 
 
Under the new instrument, the new overall rate of return for grid owners will drop from 5.76% to 5.36%. 
 
However ENA - the peak national body representing gas distribution and electricity transmission and distribution businesses throughout Australia - has hit out at the new benchmark, which makes up approximately 50% of a network business' allowed revenue, branding it a risk to future investment and a repeat of past mistakes. 
 
 "This is a short-sighted decision that is inconsistent with market evidence and could end up delivering perverse results for customers," Energy networks CEO Andrew Dillon said. 
 
"Capital expenditure on networks is already at decade lows. A lower rate of return isn't needed to reduce networks' spending on infrastructure, that's already happening." 
 
"This decision will discourage energy networks from investing in the technologies needed to modernise the 20th Century grid to accommodate the rapidly increasing amounts of solar and storage that customers want and government policy is driving," he said.
 
The Australian Energy Market Operator predicts that failing investment in a more connected grid which links states and competition could cost customers upwards of $1.2 billion. 
 
"The Rate of Return decision misses the critical point that a key part of lowering long-term power prices is strategic investment in the grid, increasing the risk that timely investment will not occur," Dillon said. 
 
Last week the Coalition government announced it would provide an additional $23 million over five years with further funding on an ongoing basis to develop a reference bill and make a ‘default market offer' for electricity, acting as a price safety net aimed at ensuring customers received a fair deal.