NSW electricity users will see an estimated 10 per cent sliced off their electricity bills in the wake of heavy cuts to spending planned by the government-owned electricity distributors.
Planned spending by NSW power and gas distributors has been slashed in the wake of slumping energy demand which will dent state government optimism about the amount it can raise from the sale of electricity industry assets after next year's elections.
The industry regulator, the Australian Energy Regulator, has imposed deep cuts on the planned spending of the energy distributors, pointing to declining energy demand, while also slashing interest rate assumptions.
"The demand for electricity is falling which puts less strain on the networks and requires less investment to provide a reliable supply of energy. These draft determinations reduce the spending proposals to ensure that only prudent and efficient costs are recovered from consumers," said Paula Conboy, the newly installed chair at the AER.
Households could expect reductions of an estimated 10 per cent in their electricity bills in 2015/6, followed by "small increases" over the following three years, she said.
Along with cuts of up to 35 per cent in planned spending, the regulator has sliced the assumed interest rate included by the distributors in their spending to 7.15 per cent, down from 8.83 per cent previously.
"Perceptions of risk increased during the global financial crisis, but are now decreasing. This means that the lower cost of capital for debt and equity translates into the lower financing costs necessary to attract efficient investment," Ms Conboy said.
The deep cuts will enable the distributors to cut charges, reversing the steep rise in their charges which has occurred over the past five years.
The tough regulatory approach will hit the amount raised from the planned privatisation of the power distributors. Earlier this week, the Baird government outlined $20 billion in spending from the funds raised through the sale of the so-called 'poles and wires' of the electricity network - a move for which it is seeking electoral support at the March state election.
However the draft determination outlined on Thursday will force through price cuts which will hit the revenues and earnings of the three distributors - Ausgrid, Endeavour Energy and Essential Energy. Their charges make up around 40 per cent of the electricity bill.
In its submission, Ausgrid sought price rises averaging 2.37 per cent a year in the four years to 2018/19. For its part, Endeavour Energy sought a 1.3 per cent rise over the same period and Essential Energy a 2.3 per cent rise.
The tougher stance of the regulator follows a sharp backlash to surging power prices which has been due in large part to the company's heavy spending to upgrade the power network, sparking criticism of 'gold-plating" in some quarters.
The government outlined $20 billion of spending across a host of areas such as public transport and roads, health, education and the like, based on the sale of remaining electricity industry assets.
If implemented, the AER's decision will slash the revenue forecast for Ausgrid over the four-year regulatory period from $10.1 billion to $6.6 billion. For Endeavour Energy, its revenues would fall to $3 billion, down from the $4.3 billion previously forecast, while Essential Energy's expected revenues would reduce to $3.7 billion from $5.6 billion.
