Submission To The Australian Energy Regulator

Price Determination For SA Power Networks 2015-20

COTA SA has had the opportunity to provide input on issues around electricity pricing in South Australia through various mechanisms, including its response to SAPN's Directions and Priorities paper, released in 2014.

In late 2014, SAPN announced revisions to its original proposal outlined in Directions and Priorities. It has publicly stated that it has done this in part due to consumer feedback it received throughout 2014.

COTA SA has concerns about the consultation undertaken by SAPN that allows it to - in our view erroneously - claim that its customers are happy to pay more for the distribution component of their power bills. COTA SA participated in the SAPN consultation on 28 October 2013 in Adelaide. At that consultation, SAPN and Deloitte presented cases for ongoing investment in upgrading and beautifying infrastructure, in reducing fire hazards and in undergrounding power lines. Those present, including COTA SA, agreed that there was value in these types of investment - in principle. As constructed, the consultation process asked participants to say if they liked these activities. Not surprisingly, the majority agreed. In some respects, this was a form of push polling.

However, the price implications for consumers were never fully explored. The consultation on the whole took a blue sky approach to investment without providing clear and detailed economic modelling on the cost implications of investment and operational scenarios. In addition, an informed consultation should also have better canvassed:

  • future expenditure proposals, both capital and operational
  • service priorities 
  • price structures, current and proposed
  • sources of SAPN's revenue and profit streams
  • the link between capital and operational investment, revenue and the cost implications for consumers.

Without this full information, the consultation outcomes were necessarily skewed. SAPN itself said, ‘The proposals will ensure customers get what they have said they most value - reliable, safe and secure electricity supply.' Consumers do value these things, however what they value even more highly - or at the very least, as highly - is low-cost electricity. This was not adequately reflected in the proposal.

In its formal proposal, Regulatory Proposal 2015-20, SAPN has noted customer and community concerns about the high costs of electricity and has revised down its capital investment over the regulatory period. COTA SA welcomes this change, however it shift does not go far enough. SAPN persists in listing the following key customer insights:

  • customer experience
  • visual amenity
  • community safety and reliability
  • evolving customer.

The underlying claims around consumer choice for tree lopping and beautified sub-stations continue to be used by SAPN to boost investment and therefore its regulated return above what are reasonable market rates. Of the eight key programs of work encompassed in SAPN's final proposal, five allow for investment (in areas such as network augmentation, asset replacement, network hardening, vegetation management, and bushfire mitigation) which will justify ongoing high profits for the company but do little to ensure customers are not overcharged.

SAPN's key program for ‘cost-reflective tariffs and demand side participation' concentrates on metering. While metres may ensure individual consumers are correctly charged, this does nothing to bring down the overall unit cost of electricity. In fact, as capital expenditure it may increase costs for individual consumers during the period. A suggestion by SAPN that management of meters attract an incremental charge suggests perpetually upward costs to the consumer. This suggestion is not supported by COTA SA.

COTA SA's position in 2014 and now is that, while SAPN's proposed investment program has some merit, this must be balanced against the cost impost on consumers. COTA SA is clear that the cost to consumers is too high. SAPN claims that its share of the electricity bill has fallen from 49% to around one third, representing only 15% of the cost increase in residential electricity costs over 15 years.

COTA SA does not support price increases for residential and non-residential customers that cannot be justified by CPI or by targetted and justified investment within the network.

Download and read COTA SA's full submission