Energy Regulator to investigate networks

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Federal Minister for the Environment and Energy, Josh Frydenberg, has accused electricity networks and gas pipeline owners of “gouging” customers in a bid to cover their corporate tax liabilities, an accusation strongly denied by Energy Networks Australia (ENA) CEO Andrew Dillon.

The response comes after the Australian Energy Regulator (AER) released an issues paper on its approach to estimating tax for regulated energy networks.

The amount of tax a network business is expected to pay each year is considered by the AER, along with its expected capital, operating and financing costs, when it sets revenue allowances for regulated electricity and gas networks.

The AER determines the expected cost of corporate tax in accordance with the relevant legislation – that is, the National Electricity Rules (NER) and the National Gas Rules (NGR).

Preliminary advice from the Australian Tax Office (ATO) identifies a number of drivers causing an apparent material discrepancy between the tax allowances set by the AER and the actual tax payments made to the ATO by the regulated networks.

The AER will investigate the difference between tax allowances and tax payments, including using its information gathering powers if necessary.

The AER will examine the drivers identified by the ATO and consider how they might be addressed. Options may include amendments to how the AER regulates the tax aspects of its revenue determinations and/or proposed changes to the NER and NGR.

Mr Frydenberg has requested the AER provide an initial public report in June 2018, and a final report and recommendations on any changes required by December 2018.

This review will help ensure that energy consumers pay no more than necessary for the safe and reliable delivery of electricity and gas services.

As part of the revenue determination process, regulated networks receive an allowance to cover their corporate tax liabilities. This is passed onto consumers, at a cost of around $600 million a year.

The AER will review how it models tax costs and make any changes required before the next round of revenue determinations, which are due in April 2019. It will also provide recommendations on any changes required to the national energy rules.

This review complements action already taken by the Government to fix the regulatory framework, including abolishing the Limited Merits Review regime, which allowed network businesses to increase electricity bills by around $6.5 billion through the appeals process.

Energy Networks Australia (ENA) have said that it will actively participate in the tax review, with ENA CEO, Andrew Dillon, saying that while a review of the issue was appropriate, it was essential that regulatory changes were in the long term interests of customers and not just knee-jerk political reactions.

“Networks are not gouging customers,” Mr Dillon said.

“The current benchmark approach to tax allowances is set by the AER to avoid customers in different suburbs paying different charges and the risk of sudden price rises when there is a change of ownership.

“Many knee-jerk policy decisions over recent decades affecting energy networks have led to poor customer outcomes. We can’t go down that path again.”

The AER is now seeking written submissions from interested stakeholders in response to this paper by 31 May 2018.

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