Energy regulator unveils new cost-saving reforms

THE Australian Energy Regulator has unveiled a raft of reforms aimed at ensuring consumers are not paying more than they should for electricity and gas.

Under the changes released on Friday electricity providers would be prevented from excessive and inefficient spending on network infrastructure, which accounts for about half of power bills.

"Gold-plating" of the electricity network in recent years has been the key driver of escalating power prices.

The previous regulatory framework locked the AER into a method of calculating the returns that network businesses could earn and exposed consumers to significant price shocks.

AER chairman Andrew Reeves said the proposed reforms, part of the organisation's Better Regulation program, would hopefully put a stop to inflated spending on infrastructure.

"Through the Better Regulation program the AER is improving how we regulate energy network businesses. Consumers should only pay network prices that are based on the efficient costs of providing reliable energy services," Mr Reeves said.

"These proposed reforms would prevent excessive spending and give network businesses sufficient, but not excessive, returns on their investments. Further, there should be greater communication between network businesses and consumers so that investment is focussed on what is valued by consumers.

"Improved penalties and rewards mean consumers will not have to pay for excessive investment. The AER will use benchmarking to compare the relative efficiency of network businesses. Inefficient networks will face cuts to their proposed expenditure."

The AER's new process would use more varied information, enabling it to calculate returns that are based on efficient financing practices.

"The reforms include a new framework to help network businesses engage with consumers so that their spending proposals can be based on genuine consumer priorities. It is important for consumer engagement to be integrated throughout network businesses," he said.

The AER is inviting feedback on these proposals.



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