'Gold-plating' of electric assets to end

23 Aug 2012, 7:17 pm   -   Source: AAP

A change to the rules governing electricity networks should end the "gold-plating" of infrastructure that's been responsible for driving up power bills.

Electricity companies won't be able to profit from overinvesting in their poles and wires under tough new rules proposed by the Australian Energy Market Commission (AEMC).

Skyrocketing transmission and distribution network costs have been the single biggest contributor to electricity price rises in recent years.

That's because businesses that spent more than their capital expenditure allowance could subsequently add the amount to their asset base and recover it from consumers.

But under the commission's proposed changes, released on Thursday, only "efficient" spending in legitimate circumstances could be recovered.

So-called gold-plating would become a thing of the past.

The commission also proposes changing how the Australian Energy Regulator (AER) determines acceptable rates of return for service providers.

The rate of return would be based on a "benchmark efficient service provider".

"While network businesses will be rewarded for undertaking efficient and necessary investment, consumers will not be required to foot the bill for inefficient overspending," regulator chairman Andrew Reeves said of the proposed rules.

"Clear authority to benchmark network business practices and costs will ensure customers are paying no more than necessary for the services they require."

AEMC chairman John Pierce said the existing rules were developed when the biggest concerns were the risk of underinvestment in infrastructure and the need to meet reliability standards.

"This draft determination aims to improve the capacity of the regulator by giving it new tools to determine efficient costs for each regulated business," he said in a statement on Thursday.

Electricity businesses themselves believe the proposed rules will give the regulator "wider discretion on key points such as setting rates of return and incentives for efficient capital expenditure".

The Energy Networks Association said the changes wouldn't alter the fact that networks still needed the capacity to meet customer demand on hot summer days.

"Assets past their working lives will still need to be replaced," association chief executive Malcolm Roberts said in a statement.

"Businesses will still need to borrow capital at market rates."

Federal Energy Minister Martin Ferguson said network rules had to balance twin objectives of minimising costs to consumers and providing sufficient investment to maintain reliability.

"These draft rules are an important step forward in delivering this," he said in a statement.

Public submissions on the proposed rules can be made up until October 4. The new regime is then expected to be in place by November.

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