Opening comment to Senate Inquiry into the performance and

management of electricity network companies

Gerard Brody and Janine Rayner, Consumer Action Law Centre

Thank you for the opportunity to speak to this inquiry.

Our submission provided a potted history of the national reform process which
applied to the network regulation of electricity and gas. Our intention in
providing this history was to demonstrate that at key points in the policy making
and rule making, industry interests were placed ahead of consumer interests.
This incorrect focus, we submit, has led to the current situation where there are
allegations of inefficient or over-investment in networks, contributing to rising
consumer bills.
There is some evidence that the Victorian networks have been more efficient,
and the network component of Victorian customer bills have not increased as
much, compared to other states. For example, the network cost in Victoria is
about a quarter of the bill compared to half in other states. However, this has not
stopped the networks using the regulatory system to obtain returns that are
higher than efficient the example of the Victorian networks appealing the
Australian Energy Regulators determination for distribution pricing during 20112015 is case in point. Another is the regulators December 2014 decision to
approve excess expenditure relating to the Victorian smart meter rollout to the
tune of $111 million: this means that the cost of the rollout was this much higher
than initially budgeted for, but consumers still pay the difference.
As for-profit privately-run businesses, it is natural for these businesses to seek to
maximise returns. The point is whether the regulatory regime is sufficient. One
proposal put forward in our submission was to consider whether the separation
of the Australian Energy Market Commission from the Australian Energy
Regulator remains appropriate. We submit that one institution may better focus
consumer accountability, and prevent buck passing.
Another option is to have stronger consumer representation in the governance
frameworks of these bodies. This is not a novel suggestion. Since the inception of
the Australian Competition and Consumer Commission, the position of deputy
chair has been filled by a person with extensive expertise in consumer affairs.
The current Deputy Chair of the Australian Securities and Investments
Commission is similarly qualified. We believe that there should be at least one
member of the AER and commissioner of the AEMC that has strong credentials in
consumer affairs, representation or advocacy. After all, the objective of these
bodies is to promote the long term interests of consumers.
Our submission also noted the changing role of networks, and particularly the
role of new technology driving onsite generation and demand side management.
We are concerned that the networks are allowed to respond to this by increasing
the fixed proportion of the consumer bill, that is, the part of the bill that does not

vary with usage. In December 2014, the Essential Services Commission reported
that fixed charges have increased 60 per cent since 2009-10, while overall prices
increased only 45 per centsuggesting greater reliance on fixed charges
compared to usage charges. More recently, the Society of St Vincent de Paul
found that supply charges increased significantly in some network areas in
January 2015. For example, it found that Lumo energy customers on a time of
use tariff in SP Ausnets network area pay a supply charge of $730 per annum,
more than $2 per day. This is how much they pay before they consume anything.
Increasing supply charges impact low-use households, including low-income
pensioner households, those that are efficient, or those with solar panels. We are
concerned this issue will become worse in coming years and we submit that it is
not efficient for businesses to be able to charge such large fixed supply charges.
Finally, wed like to conclude with a few comments about the current debate over
the AERs use of benchmarking in the latest round of network determinations.
The businesses are strongly critiquing AERs use of benchmarking, because it is
making transparent their inefficiencies. As noted in our submission, we were
supportive of 2012 reforms that allowed the AER greater ability to interrogate,
review and amend expenditure proposals of network businesses. The use of
benchmarking, to allow the regulator to compare the network business with a
benchmark efficient business, was also supported by the Productivity
Commission in its 2012 report into energy networks. We also note that the
networks were involved closely in the AERs 2013 better regulation program
which developed the AERs approach, so it defies logic for them now to be
critiquing the analytical technique.
Wed be happy to take your questions.