On 2 October 2014, the Senate referred an inquiry into the performance
and management of electricity network companies to the Environment and
Communications References Committee. The terms of reference for the inquiry are
- the manner in which electricity network companies have presented
information to the Australian Energy Regulator (AER), and whether they have
misled the AER in relation to:
their weighted average costs of capital,
the necessity for the infrastructure proposed,
their regulated asset valuations, and
actual interests rates claimed against actual borrowing costs;
how electricity companies, including state government owned electricity
companies such as Energex, have calculated the weighted average cost of capital
and how this measure has changed over time;
where anomalies are identified in relation to price structuring or
allegations of price rorting by electricity companies, such as Energex, are
raised, the possibility of these matters being investigated by a national
independent body created by the Federal Government with the required powers and
reach to investigate and prosecute, where necessary;
to ascertain whether state-owned network companies have prioritised
their focus on future privatisation proceeds above the interests of energy
whether the arrangements for the regulation of the cost of capital are
delivering allowed rates of return above the actual cost of capital;
whether the AER has actively pursued lowest-cost outcomes for energy
whether network monopolies should have the right to recover historic
overspending that has delivered unwanted and unused infrastructure;
how the regulatory structure and system could be improved;
whether the arrangements for the connection and pricing of network
services is discriminating against households and businesses that are involved
in their own electricity production;
whether the current system provides adequate oversight of electricity
network companies; and
any other related matter.
The committee was initially required to report by the first sitting day
in March 2015 (2 March 2015). However, on 2 March 2015, the Senate granted
an extension of time to report until 20 April 2015.
On 20 April 2015, the committee requested a further extension to 5 May 2015 to
report. The committee subsequently requested a further extension to 5 June
Conduct of the inquiry
The committee advertised the inquiry on its website and in The
Australian newspaper. The committee also wrote to relevant organisations
and individuals inviting written submissions.
The committee received 73 submissions, which are listed at Appendix 1.
Included in the submissions are 552 letters co-ordinated by a community
organisation that the committee agreed to receive as a submission.
The non-confidential submissions were published on the committee's website.
The committee held public hearings for this inquiry in Brisbane on
16 February 2015, Sydney on 17 February 2015, Melbourne on 18 February
2015, Adelaide on 19 February 2015 and Canberra on 24 March 2015. A list of
witnesses who appeared at the hearings may be found at Appendix 2.
The committee thanks all of the organisations, individuals and
government departments and agencies that contributed to the inquiry.
First interim report
On 20 April 2015, the committee presented an interim report that addressed
many of the key issues canvassed during the inquiry.
Among other matters, the first interim report:
outlined various developments that help place this inquiry in
provided an overview of the regulatory framework for electricity
considered in detail the revenue determination process and the
components that determine the maximum allowable revenue for a network business,
such as the regulatory asset base (RAB), weighted average cost of capital
(WACC) and operating expenditure;
discussed particular issues that may arise when regulating
government-owned network businesses;
considered information asymmetries that exist in the regulation
process and whether there are incentives for network businesses to 'game' the
examined concerns about the process by which the rules that apply
to electricity network businesses are made, as well as concerns regarding the
framework of rule-making and regulatory institutions more generally; and
discussed the future of electricity networks and the implications
for consumers, policymakers and regulators.
The committee made 18 recommendations in its first interim report.
These recommendations are reproduced at Appendix 3.
Second interim report and final report
As explained in the first interim report, by mid-April 2015 the
committee had finalised its deliberations on many of the key issues canvassed
during this inquiry. However, the committee required additional time to
consider particular instances where the conduct of network service providers was
questioned. The committee presented a second interim report on 5 May 2015 that
requested a further extension of time to consider these matters.
The evidence that the committee had not concluded examining by the
time the first interim report was finalised include:
allegations made by a whistleblower that a Queensland
government-owned distribution network business, Energex, manipulated data about
its costs; and
allegations put forward by other stakeholders who consider the
regulator is being misled about the necessity of particular infrastructure
Also not addressed in the first interim report were matters that appear
to be intrinsically linked to the allegations outlined above. These matters
the AER's powers to obtain from network businesses the
information necessary for the AER to perform its regulatory functions;
the penalties for providing the AER with false or misleading
clause (c) of the terms of reference, which outlines a proposal
for a new agency to be charged with investigating certain allegations related
to electricity networks pricing.
These outstanding matters are considered in the following chapter of
this report. Readers should refer to the first interim report for background
information and explanations of key concepts related to the regulation of
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