WA households have likely been spared a $1.9 billion increase to their power prices over the next five years after an important legal victory by a State regulator.
Establishing a precedent that could have national ramifications, the Australian Competition Tribunal has confirmed the WA Economic Regulation Authority's right to set prices using the Reserve Bank's five-year bond rate.
The tribunal's July 26 decision overturns the long-standing practice of using more generous measures to calculate rates of return for regulated energy entities.
The biggest impact of the decision will be on Western Power which had sought an 8.82 per cent rate of return on its $6.5 billion worth of distribution and transmission for the next five years.
Instead the ERA, in a draft decision, used new parameters which mean Western Power's rate of return will be clipped to 4.73 per cent.
The difference between the two rates of return equate to at least $1.9 billion by 2017.
ERA chairman Lyndon Rowe said given the capital intensive nature of Western Power, any reduction in its rate of return would ultimately flow through to the State's power consumers.
"A variation in the rate of return means a lot of money, and ultimately that money is paid by consumers," he said.
Mr Rowe said the decision should flow through to energy regulators in other parts of the country which are under pressure to keep a lid on price increases by power operators.
"It is a precedent for regulatory practices in Australia which has been given the tick by two decisions of the Australian Competition Tribunal," he said.
The ERA victory follows the move by Prime Minister Julia Gillard this week to target the sharp increase in electricity prices across the nation over recent years.
She has argued that companies have engaged in "gold-plating" of their networks in a deliberate bid to maximise their returns to State governments that are using the money to boost their budgets.
Ms Gillard said yesterday that the sharp increase in prices over recent years could not continue.
Opposition Leader Tony Abbott broke with Liberal premiers Campbell Newman and Barry O'Farrell and his own energy spokesman Ian Macfarlane, denying there had been any "gold-plating".