Australian Energy Regulator releases draft determination on SA power charges

Electricity bills could drop as early as next year after the Australian Energy Regulator released its draft determination on SA Power Networks charges.

From 2020-25, the regulator made a draft ruling that the state's sole energy distributor could recover $3.9 billion from customers. This was down $309.2 million on the $4.2 billion SA Power Networks had proposed.

Minister for Energy and Mining, Dan van Holst Pellekaan, welcomed the draft proposal and said the determination showed additional savings of $63 per year for the average household from as early as next year.

"This draft determination shows that our state is heading in the right direction when it comes to the price of electricity," he said.

"Our government is committed to transitioning South Australia's energy mix so that it's more affordable, more reliable and cleaner.

He said the AER was proposing larger cost reductions in its draft determination than in SA Power Networks' proposal, and had accepted many of the South Australian government's key recommendations.

"We have been pushing for more savings for South Australian consumers and leading the way with positive energy policy, and this draft determination paints a promising picture for the future," he said.

The interim determination will see the total allowed revenue covering the state energy distributor's operating and capital expenditure, according to the nation's regulator of the wholesale electricity and gas markets.

It will also provide a rate of return of 4.95 per cent. The AER says this is consistent with current market conditions.

In its draft determination, the AER said ensuring consumers pay no more than necessary for safe and reliable electricity was a cornerstone of the regulatory determination process.

"This involves us assessing whether a business' proposal is a reasonable and realistic forecast of how much money it needs for the safe and reliable operation of the network. To do this we use a range of materials including SA Power Networks' formal regulatory proposal, submissions from stakeholders and our own analysis," the report read.

"Additionally we met with SA Power Networks representatives to discuss the proposal. This draft decision finds a significant difference between what SA Power Networks proposes and what we consider efficient spending on capex, especially regarding the need for future investment.

"Our decision to allow SA Power Networks lower amounts of money to spend in this regard reflects what we consider a reasonable forecast of the spending required to deliver safe and reliable electricity services over the next five years."

Spark Infrastructure, which owns 49 per cent of SA Power Networks, hit out at the regulator's draft determination.

Managing director Rick Francis told the Australian Financial Review it was "disappointing" that the AER had "not acted on the clear message it has received from the investment community in relation to the market's rate of return expectations".

"In our view, the rate of return is insufficient to ensure the long-term sustainability and reliability of Australia's electricity infrastructure," he told the Australian Financial Review.

SA Power Networks now has the opportunity to consider the draft decision and has until December 10 to submit a revised proposal. The final decision should be released on April 30, 2020.