Energy regulator concedes can do better on poles, wires
The energy regulator wants consumers to get more from taxpayer-funded incentives paid to providers for running more efficient, reliable networks.
A review has found various incentive-based schemes have improved efficiency and lowered costs for electricity network service providers (NSPs), and reduced the network charges passed on to customers.
But "some modifications" are needed to further benefit energy consumers, according to the final decision released by the Australian Energy Regulator (AER).
The decision forces network providers to explain differences between expenditure forecasts and actual spending to allow greater scrutiny.
A consumer panel that advises the regulator was concerned providers were "gaming" the scheme, with so-called over-performance resulting from forecasting errors rather than genuine improvements.
Incentive payments to poles and wires providers have added up to two per cent to revenues over the past five years, which is equivalent to $1.2 billion, the AER report found.
Energy retailers pay the network service charges and then pass them on to customers. These charges can account for up to half the cost for residential consumers and about 10 to 20 per cent of total costs for large energy users.
The report said there remains "scope for improvement", including a better deal for consumers by "reducing the risk of forecasting errors".
Independent research by the Institute for Energy Economics and Financial Analysis last year found "supernormal" profits for distribution and transmission network service companies.
The institute said the incentive-based regulatory system led to network businesses over-estimating the costs of providing a reliable network and "overcharging" consumers by $10 billion between 2014 and 2021.
AER chair Clare Savage said the incentive-based schemes were an important part of getting better long-term outcomes for energy consumers.
"Consumers have benefited significantly from the incentive-based regulatory framework, with reductions in network expenditures and revenues over time," Ms Savage said.
The review found the operating expenditure of energy network businesses is almost one third (30 per cent) lower than it was 10 years ago, and capital expenditure has been halved, contributing to significant reductions in network charges.
"At the same time, service standards have improved, with the frequency and duration of outages at a record low," Ms Savage said.
Network service providers are rewarded for efficiency gains and the "majority" of benefits have been passed on to consumers, she said.
The existing capital expenditure sharing scheme provides incentives to improve efficiency by rewarding networks when expenditure is lower than forecast and penalises them when it is higher than forecast.
The regulator will reduce the rewards to networks when expenditure outperformance is high, so that penalties to networks can be higher than the rewards.