Regulatory Update

01 Oct 1999Archived News Climate Change Matters

In the early days of deregulation, most companies were focused on leveraging maximum savings through negotiating the best possible retail price. As deregulation proceeds and the market matures, our focus is broadening to also include a careful look at regulatory charges as well as managing contracts for the long term.

 

Recent regulatory decisions in natural gas and electricity have provided changes in the network costs for many sites. It is important to therefore be aware of these changes and to understand the implications for your operations.

Electricity

NSW

IPART have approved a significant reduction in electricity network costs over the next five years, commencing 1 st July 2000. While IPART anticipates an average reduction in network costs of approx. 6%, some sites may see savings of up to 15%. However, it is important to note that a few tariffs in rural NSW areas have increased in line with CPI.

Secondly, some of the new tariffs include new restrictions that need to be reviewed to ensure that your selected tariff is the best option. Network costs typically amount to over 50% of the total electricity bill, thus the reduction in network tariffs may offset some of the cost increase in retail prices.

Victoria

Similarly, the Victorian government has proposed a reduction in network charges of up to 15% from 1 st January 2001. Submissions have been requested and received, and a final decision is expected mid September 2000.

In reviewing the electricity network tariffs, care should be taken to confirm that the new charges have been passed through and that your sites are on the best tariff. This is important given that network tariffs are more complex and some sites have been found to achieve significant savings by switching tariff or from power factor correction.

Natural Gas

In September 1999, IPART delivered its draft determination on AGL's Access Arrangement to set network prices for five years from 1 st July 1999. In that report AGL's total network revenue was recommended to fall significantly. As a result IPART have indicated that "the overall revenue reduction will translate into lower prices for contract and tariff customers".

Following a number of stages of public comment, the final decision was recently announced which provides a reduction in real network revenues of 7.5 per cent between 1999 and 2004 and will provide an appropriate balance between the interests of customers and AGLGN. This revenue reduction will largely relate to the contract market.

AGL is expected to specify the new tariff structures by 31 st August 2000.

Energetics has worked with many large NSW gas customers to lobby for major changes to the Access Arrangement and have conducted analysis on the proposed new arrangement, which indicates that most customers will see a cost reduction. However, due to the complex structure of the new methodology, careful analysis is required to quantify the impact of the new costs and to confirm if your site is on the best tariff.

Under the new access arrangement companies will have options to mitigate their exposure to overruns and penalties and to take up new tariffs which provide cover for exceeding your MDQ at a premium.

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