SA Power Networks (SAPN) is the owner and operator of the South Australia electricity distribution system. On 31 January 2019, SAPN submitted its regulatory proposal for the five year regulatory period commencing 1 July 2020 to the Australian Energy Regulator (AER) - which regulates electricity transmission and distribution networks throughout Australia.

The AER has now released its draft decision on SA Power Networks’ proposals.

THE EXECUTIVE SUMMARY OF THE DECISION IS REPRODUCED BELOW. The full draft response can be downloaded here.

SAPN will now have the opportunity to submit a revised proposal by 10 December 2019 in response to the AER’s findings. The AER has invited submissions from stakeholders on both the draft decision and revised proposal by 15 January 2020. 

EXECUTIVE SUMMARY

Regulated electricity network businesses must periodically apply to us for a ruling on the amount of money they can collect from their customers to run their business. We use our insights and expertise to determine how much money the businesses can recover from consumers for using their networks. We are currently doing this for SA Power Networks for the 2020–25 regulatory period.

This draft decision allows SA Power Networks to recover $3905.3 million from its customers for the 2020–25 period. This is $309.2 million less than the $4214.5 million SA Power Networks proposed. The revenue we allow forms the distribution network component of electricity bills. Other components of the electricity bill include generation, transmission environmental policy and retail costs. We estimate that if this draft decision is implemented average residential customers and small business customers in South Australia will save, leading to a drop of $20 and $90, respectively by 2024–25.

In making this draft decision we took three key factors into account: 

  • Ensuring that consumers pay no more than they need for safe and reliable services 

  • SA Power Networks’ engagement with consumers 

  • Recognition that an evolving electricity system requires investment.

This draft decision finds a material difference between what SA Power Networks proposes and what we consider efficient spending on capital expenditure (capex) with regard to SA Power Networks’ need for future investment. SA Power Networks has demonstrated timely and effective engagement with its consumers and stakeholders, but there are concerns that their feedback, especially around balancing prices with other competing priorities, is not reflected in the proposal.

Our draft decision also recognises that the way South Australians engage with electricity is changing, and that the rapid uptake in rooftop solar is having a significant impact on SA Power Networks’ network. Accordingly, our draft decision reflects SA Power Networks’ need to develop new ways to address the evolving needs of consumers.

What are the next steps?

SA Power Networks now has the opportunity to consider our draft decision. It must submit its revised proposal and supporting material by 10 December 2019. We will make the final determination by 30 April 2020. Detailed explanations of other factors informing our draft decision can be found in the overview section and attachments to this draft determination.

What does this mean for consumers?

We estimate that if this draft decision is implemented, network charges in 2024–25 would be: 

  • $20 lower for average residential customers in South Australia 

  • $90 lower for average small business customers in South Australia.

The average annual electricity bill for a residential or small business customer is estimated to be around 1 per cent lower in 2025 compared to the current level.

What does this mean for SA Power Networks? 

The total allowed revenue provides for SA Power Networks’ operating and capital expenditure.  It also provides a rate of return of 4.95 per cent consistent with current market conditions.  Tax allowance has been reduced in line with our recent review of the regulatory tax approach and the 2018 rate of return instrument resulting in a reduction of $226.1 million compared to the 2015–20 regulatory period.

Ensuring that consumers pay no more than they need for safe and reliable services

Ensuring consumers pay no more than necessary for safe and reliable electricity is 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. 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. SA Power Networks has provided some justification and supporting evidence for its proposed capex investment. However, there are gaps in this information which prevent us from supporting its proposal. SA Power Networks has the opportunity to address these concerns in its revised proposal and we will carefully consider additional material before making our final decision.

SA Power Networks’ engagement with consumers

SA Power Networks demonstrated effective early engagement with its consumers and stakeholders, but there are concerns their feedback, especially around affordability, is not reflected in the regulatory proposal. Consumers and other stakeholders that took part in SA Power Networks’ engagement process told the company they had three major priorities: keeping prices low, network reliability and safety and the transition to a new energy future. SA Power Networks has reflected these, in part, in its proposal.

However, in balancing these competing priorities, stakeholders told us that SA Power Networks could do more to reflect their views, notably in keeping prices low. Stakeholder feedback also urged us to evaluate the proposal to ensure that the forecast expenditures represent value for money. SA Power Networks’ consumer engagement has improved significantly from the 2015–20 process. Continued robust engagement will lead to a more informed revised proposal and give consumers and other stakeholders’ confidence that SA Power Networks’ proposals work in their long term interest.

Recognition that an evolving electricity system requires investment

The way South Australians engage with electricity is changing, and the rapid uptake in rooftop solar is having a significant impact on networks. This draft decision reflects SA Power Networks’ work to develop new operational systems to engage with technologies like Distributed Energy Resources (DER) and others to address the evolving needs of consumers. The future impacts of Electric Vehicles (EVs) and electric storage are uncertain but increasing levels of solar photo-voltaic (PV) installations are causing voltage issues in the low voltage (LV) network. This draft decision approves $34.1 million for SA Power Networks to develop a new LV management program. This program will allow the use of new technologies and will also harness data to manage the energy flows and optimise generation across the network.

SA Power Networks undertook good analysis of PV driven voltage problems and developed an effective cost benefit analysis and business case. We consider that SA Power Networks’ proposed program provides an efficient solution. SA Power Networks has also taken positive steps in developing new tariffs that alleviate voltage problems by increasing demand during the middle of the day.

Posted
AuthorRay Dennis