The investment in new power infrastructure and future operating expenditure proposed by SA Power Networks will not deliver cost savings for consumers, according to Business SA’s Chief Executive, Nigel McBride.
Commenting on the business group’s submission to the Australian Energy Regulator (AER) on future power pricing, McBride also said SA Power Network’s pricing model would lock in higher electricity costs beyond the five years (2015-2020) currently under consideration.
McBride said an overwhelming majority of Business SA members regarded lower electricity prices as their highest priority and the current SA Power Network’s proposal to the AER would not deliver the desired cuts.
“Business SA is concerned about the sheer volume of SA Power Networks’ proposed spending increases with capital expenditure up 50%, to $2.5 billion over five years and operating expenditure up 25%, to $1.6 billion over five years,” McBride said.
“In general, companies only increase capital expenditure to reduce operating expenditure and we are concerned that too much of SA Power Networks’ proposed spending will not deliver cost savings to consumers.
“Secondly, if approved, these proposals would lock in significant additional electricity costs not just over the next 5 years, but beyond as they are incorporated into the Regulated Asset Base and Base Year Operating Expenditure used to calculate revenues in future regulatory periods.
You might like
“Similar to other asset intensive utility companies such as SA Water, a large driver of SA Power Networks’ revenues actually comes through the regulated returns it earns on the value of its assets. Accordingly, consumers need to be assured that any growth in the Asset Base is absolutely necessary to maintain an acceptable standard of electricity supply.
“At a time of falling electricity demand which has occurred since the large scale adoption of solar power, Business SA has concerns that SA Power Network’s proposed Asset Base increase of $1 billion, from $4 to $5 billion over 2015-20, is not justified.
“The common thread of feedback to Business SA on the impact of recent electricity price rises has been the difficulty energy intensive exporters face remaining competitive in export markets when costs cannot be passed on. Businesses also say they are increasingly unable to employ more staff because of rising costs and, for small businesses, that usually means the owners working much longer hours themselves.
“The State Government’s seven strategic priorities include “Growing advanced manufacturing” and “Premium food and wine from our clean environment”. If South Australia is to realise the full potential of these industry sectors which can provide long term sustainable economic growth, and with it much needed jobs, then business needs an affordable supply of reliable electricity, the very foundation upon which South Australian industry was built.”
The AER is a Federal Government authority which regulates electricity networks by setting the maximum prices that the network owners can charge, or the maximum amount of revenue they can earn.
SA Power Networks submits proposals to the AER on its required revenues and the AER reviews the proposals and makes decisions with reference to factors including:
Stay informed, daily
• projected demand for electricity
• age of infrastructure
• operating and financial costs; and
• network reliability and safety standards.
The AER’s role is to promote the efficient investment in and use of energy services for the long term interests of consumers as enshrined in the National Electricity and Gas Laws.
McBride said “Business SA has submitted a comprehensive submission to the AER detailing why the organisation was questioning a number of SA Power Network’s expenditure proposals.”
The results of a survey of members confirmed that energy costs are a critical issue which is defining the outlook for SA businesses.
“We found that 87% of members responding wanted reduced electricity prices as their highest priority; 89% were not willing to pay for any increase in reliability, and a further 10% would be willing to sacrifice some reliability for lower prices. Only 1% would be prepared to pay for improved reliability,” McBride said.
“SA Power Networks spending makes up approximately one third of electricity bills, and since 2009 has been one of the major drivers of electricity price rises. For this reason, it is critical that it spends efficiently to ensure a reliable supply of electricity is delivered to business at the least possible cost.”
Part of SA Power Networks planned spending for 2015-20 is approximately $300 million on bushfire mitigation and road safety measures. McBride said that Business SA agrees for the need to focus on preventing bushfires and vehicle accidents (with stobie poles), but much of this type of spending has broad public benefit and any investment decisions should be made by the State Government, not just passed back onto electricity consumers.
“We also question some of the high costs being passed back onto business, including wages. SA Power Networks’ wage bill is increasing at 4.25% per annum, well above the affordable increases for broader business in South Australia and well above the caps on wage increases which exist at both a State and Federal Government level,” McBride said.
Business InSight is a partnership between Business SA and InDaily.
Want to see more stories from InDaily SA in your Google search results?
- Click here to set InDaily SA as a preferred source.
- Tick the box next to "InDaily SA". That's it.
