Latest news with #ClareSavage
ABC News
25-06-2025
- Business
- ABC News
As gas use declines, pipeline companies are shifting extra network costs onto consumers
Clare Savage might be reluctant to acknowledge she is something of a veteran of Australia's energy industry. But for more than 20 years, she has held senior positions within it, including the past six as the chair of the industry's top watchdog — the Australian Energy Regulator (AER). During that time, many things have transformed. Governments and ministers have come and gone, policies have chopped and changed, and the very mix of Australia's biggest electricity system has been radically reshaping. There has also been another, fundamental shift in Australia's energy landscape. Australian households are using less gas, with some getting off the fuel entirely. When it comes to the business of gas pipelines — how much they are worth, how they are regulated, who pays for them and how — Ms Savage says this trend changes everything. "The whole gas regulatory framework was built upon the belief that you would have a growing network," Ms Savage says. "And so all of the tools that we have, or most of the tools that we have, are founded on the belief that we'll have a growing network and that sharing the fixed costs of a network amongst a growing customer base is the best possible thing to do." Indeed, official and unofficial forecasts show declines to varying degrees in the number of customers connected to Australia's various gas networks. According to the Australian Energy Market Operator (AEMO), the body which runs the country's power and gas markets, a tipping point is at hand. The agency forecasts the number of household and business customers connected to gas networks is set to fall from almost 5 million now, to barely 4 million by 2030. AEMO says this number will collapse to as few as 1.5 million by the middle of the 2040s. Experts says a precipitous decline in gas connections will completely break the model used to regulate the networks. Under that model, gas pipeline owners are able to recover the huge cost of buying or building their networks — plus a profit margin — by charging a "fair" price to everyone connected to the network. How those prices are set, and the way they are apportioned to consumers, is determined by regulators. Ms Savage says the model had always been based on the notion there would be more customers joining the network. Courtesy of that assumption, she explains there are cross-subsidies that have helped keep costs low and encouraged ever more connections. Among them is a subsidy — paid by all existing users — that makes the cost of a new connection artificially low. Ms Savage says this way of regulating the industry and allowing pipeline owners to get their money back had worked relatively well — while the number of connections grew. "Then when we find ourselves with a customer base that might be changing or shifting or shrinking through time, we find that we've got less tools available," she says. "From that perspective, it makes the job harder." Faced for the first time with falling connection numbers, regulators including the AER are turning to novel ways of determining a "fair" price for owners and consumers alike. One of those tools is increasingly in vogue — and increasingly controversial. It is called accelerated depreciation and refers to the accounting treatment in which a company is able to fast-track the process of writing down the value of an asset. Crucially, by writing down the value of the asset in this way, the owner can pass on the cost to the consumer. And the costs can be considerable — hundreds of millions of dollars for the business and hundreds of dollars for individual consumers over a five-year period. While consumer groups have railed against its increasing use, retailers are not happy, either. Jeff Dimery is the longstanding boss of Alinta Energy, which is one of Australia's biggest electricity and gas providers. Mr Dimery says he can understand the arguments for accelerated depreciation — he just does not think gas companies should be allowed to write down their assets so quickly. "We would certainly encourage regulators to consider and to revisit accelerated depreciation on the basis of how smooth and how quickly this transition to a low carbon economy is actually occurring," Mr Dimery says. "We've been on the public record saying that we think the transition is behind schedule. For his part, Mr Dimery questions whether people will disconnect from the gas network as quickly or in as many numbers as authorities are forecasting. He notes that in some cases, pipeline owners are seeking to bring forward the lifetimes of their assets dramatically. However, he thinks the transition away from gas will happen more gradually. And for industrial customers that rely on gas to make their products, he says the shift could take many decades. As such, Mr Dimery says pipeline companies' depreciation claims should be treated with caution. "I think an important element of that also then needs to be the pace of change and this transition," the Alinta CEO says. "Let's not run down the hill here and stumble, let's walk down the hill and get it right. "And if that means that we take a longer-term view of these assets and there's a slightly slower transition and that eases the burden on consumers during a cost-of-living crisis, we don't think that's a bad thing." Ms Savage insists the AER is taking a tough approach. She points out that, collectively, pipeline owners have asked for as much as $800 million in accelerated depreciation. But she says the regulator has barely given them half of that. "We are, of course, balancing the needs of network businesses and consumers," Ms Savage says. "That's our job." Pipeline companies are sticking to their guns. Australian Pipelines and Gas Association chief Steve Davies says falling gas use is a real issue for owners, particularly distribution networks that service smaller customers like households. Mr Davies notes pipelines are typically built to last at least 40 years and there was little doubt that much could — or would — change in that timeframe. He says pipeline companies are not seeking to price gouge or generate windfall profits but simply recover their costs in a reasonable way and within a reasonable time. "We need to encourage infrastructure investment in Australia," Mr Davies says. "The regulator sets those rates of returns. They are acceptable and in line with the risk associated with investing in utility infrastructure, which is fairly low. "But we are talking about the recovery of the money that has been put into these infrastructure assets and that is a separate question from the rates of return which you achieve when you invest in the assets. "So there's return of capital and return on capital." Mr Davies argues the use of accelerated depreciation reflects the fact the regulatory system for gas pipelines was not designed for the circumstances it now faced. To that end, he suggests a broader shake-up of the system is needed. "In this changing environment, this is a challenge that hasn't been faced in Australia before," he says. "It is a fundamental question that needs to be managed properly." On this point, Ms Savage from the Australian Energy Regulator firmly agrees. Ms Savage says the watchdog was among the first of its global peers to recognise the implications for regulators of the shift away from gas. Chiefly, she says, the trend risks saddling an ever diminishing group of users with the full cost of building and maintaining a vast and expensive network of gas pipelines. Worse still, she says many of those household users who will be left picking up the tab are those unwilling or unable to get off gas and electrify. She says the regulator will continue to "use the tools we have available under the current … framework". Ultimately, though, it would like to see a revamp in the way the industry was overseen. "Our job is to worry about not just the consumers we have today, but the consumers we're going to have in 5, 10, 15 and 20 years' time, and 50 years' time," Ms Savage says. "How much should a connecting customer pay to the gas network? "What kind of contribution should a new customer make towards the assets that are being invested in on their behalf? "We think that's a really interesting and very important question to get to the bottom of."
News.com.au
26-05-2025
- Business
- News.com.au
Australians urged to search for ‘better deals' as energy prices set to soar
Australian Energy Regulator Chair Clare Savage delves into how energy prices are set to rise by up to ten per cent. The Australian Energy Regulator announced significant power price increases across New South Wales, South Australia, and south-east Queensland, driven by rising wholesale and network costs. New South Wales is set to see the highest hike, while consumers are urged to shop around for better deals as default offers may not reflect the best market prices.
Epoch Times
26-05-2025
- Business
- Epoch Times
Aussies Warned Electricity Prices Could Increase: NSW Bills Set to Rise About 9 Percent
Residents and business owners are being warned to expect electricity prices across three states amid the Labor government's push for more renewable energy. On May 26, the Australian Energy Regulator (AER) released the 2025-26 Default Market Offer (DMO) for energy prices for New South Wales (NSW), South East Queensland, and South Australia. The DMO is the maximum price that retailers can charge electricity customers on contracts, and serves as a benchmark for comparing market offers. Under the new DMO prices ( For example, a resident customer who uses around 3,900 kilowatt-hours of electricity a year in Ausgrid's distribution network will need to pay $1,965 (US$1282) from July 1, 2025, up from $1,810 previously–an 8.5 percent rise. Meanwhile, the price hikes in the two other regions are smaller, with residents and businesses being warned of increases between 3.7 percent and 0.8 percent in SE Queensland, and 3.2 percent and 3.5 percent in South Australia, respectively. Related Stories 5/25/2025 5/21/2025 AER Chair Clare Savage said it was a difficult decision for the agency to raise the DMO prices amid the current cost of living crisis. 'We know this is not welcome news for consumers in the current cost-of-living environment,' 'As noted in our draft determination, sustained pressures across almost all components of the DMO have driven these price rises.' The new DMO price increases come as the Labor has introduced some measures to reduce the cost of living burden for Australians, including a $150 What is Causing Price Increases? According to the AER, the latest price increases have been driven by the sharp rise in retail and network costs. While retail costs make up a relatively small portion of the DMO, they recorded the largest increase among all cost components—rising 35.4 percent, compared to 8.3 percent in the previous period. The AER report said this increase was due to growing costs reported by retailers, including bad and doubtful debts, the implementation of smart meters, and the cost of acquiring and retaining customers. Regarding network costs, the AER cited market factors such as higher inflation and interest rates that are compelling operators to charge higher fees. Other contributing factors include spending to improve network resilience to address climate change-related risks, integration of consumer energy resources (including rooftop solar, batteries and electric vehicles), and cyber security. High voltage electricity transmission towers in Newcastle, Australia, on April 14, the significant increase in DMO prices, Savage told consumers that they were unlikely to pay that much. 'While the DMO protects consumers on standing offers that can't or don't engage in the market, as of this month, 90 percent to 95 percent of competitive market offers are below the current DMO price,' she said. 'On average, the lowest offers across DMO regions are between 18 percent and 27 percent cheaper.' The AER chair also advised consumers to actively look for better deals and contact their suppliers if they have difficulties. 'I strongly encourage all consumers to avoid staying on an old or uncompetitive plan. Contact your retailer to see if you can get a better offer or shop around. At least every 100 days, your retailer must tell you on the front page of your bill if they can offer you a better deal,' she said. 'You can also compare available plans in the market by visiting our free and independent website–Energy Made Easy– Energy Minister Calls for More Renewables While Energy Minister Chris Bowen acknowledged the increases, he noted that it was 'encouraging news' as the price hike was not as high as previously anticipated in March. The minister also said it was the reason why the Labor government decided to extend the recent energy bill relief for a further six months. 'It's clear energy bills for Australians remain too high, and we're providing help for people doing it tough as we deliver longer-term reform,' In a statement on May 13, Bowen said that more renewable energy projects were needed to ensure 'cheaper energy' could flow into the grid and help lower electricity bills. 'The Albanese government's plan is the only one which is providing bill relief now and supported by experts to deliver a clean, cheap, reliable and resilient energy system into the future,' Minister for Climate Change Chris Bowen speaks to the media during a press conference at Parliament House in Canberra, Australia, on March 19, 2024. AAP Image/Mick Tsikas Labor's Energy Policies Have Failed: Opposition Meanwhile, opposition Liberal energy spokesperson, Ted O'Brien, said the latest DMO figures confirmed what Australians already knew–Labor's energy policies were struggling. He also stated that Australian families and businesses were being 'crushed' by the policy. 'Three years ago, [Prime Minister] Anthony Albanese and Chris Bowen promised cheaper power bills,' 'Instead, they've delivered among some of the highest electricity prices in the world. 'Everywhere you look, Labor's policies are failing. Labor is struggling to keep the lights, can't get offshore wind projects off the ground, gas supply is on a knife edge, and they can't even deliver own their reckless emissions targets.'
ABC News
26-05-2025
- Business
- ABC News
Electrity prices to rise on east coast
Andy Park: Household power bills are set to rise about to 9 per cent from July for some, following a pricing decision by the Australian Energy Regulator. For more on this, business correspondent David Taylor joined me earlier. David, what is the default market offer and how will it change from July 1? David Taylor: Well, Andy, I'll hit you with some jargon first up. The Energy Regulator has released its final determination for the default market offer for electricity prices for next financial year. So the default market offer is a price for electricity for customers on standing offers. So not negotiated contracts with their providers. Most households and businesses, Andy, are on standing offers. It's basically what you get when you call up or sign up for a deal. From July 2025, residential customers on standing offer plans will experience increases of half a per cent to 3.7 per cent in southeast Queensland, 2.3 per cent to 3.2 per cent in South Australia and 8.3 per cent to 9.7 per cent in New South Wales. And Andy, small business customers on standing offer plans will experience increases of 0.8 of 1 per cent to 8.5 per cent. And there's a big range there because, Andy, it depends on the region that you're in. Andy Park: So why is this safety net energy price for households and businesses increasing? David Taylor: Well, simply because the cost of making or producing the energy has gone up, especially in New South Wales. Now, Clare Savage is the chair of the regulator that's made this decision. It determines prices for New South Wales, Queensland and South Australia. She says it was a difficult decision to make and many factors determine an energy bill, including the cost of making power. Clare Savage: Retailers, the people who sell it to you, they buy forward contracts in there against sort of spot prices in the market. And those forward contracts have been higher. And some of that's to do with less reliable coal plant that's been running in New South Wales. So it can fall over sometimes and drive big price spikes. 9.7 per cent, yes, is the worst case scenario. But what we want to see customers doing is out there looking for the best deal. Some of the cheapest plans in the market can be between 18 and 27 per cent below the default market offer. So shopping around is a great strategy. David Taylor: Clare Savage there. And one thing that Clare Savage hasn't mentioned is, of course, the cost of finance for these energy companies to produce the energy, because they obviously have to finance the way they do business. Rising long term interest rates, therefore, are also a big part of this story. Tim Buckley is a director of Clean Energy Finance. Tim Buckley: It's complex. Energy is complex. There are four key components, network costs, wholesale prices, retail costs. All of those have gone up significantly across the board. Interest rates are up. So network costs are up. Unfortunately, the network exists for 50, 60, 70 years. The grid transmission poles and wires, they're there for 50, 60, 70 years. So we're exposed to long term interest rates. And there's also a slow delay in getting that through. So interest rates were in a 60 year down cycle until three years ago. They've been going up. This, unfortunately, is the inevitable delayed work through of long term interest rates going up. Andy Park: Clean Energy Finance Director Tim Buckley and David, when hearing prices are rising, many might be concerned it's bad news for inflation. Could that be the case? David Taylor: It could be. But we have found, Andy, that energy prices are very political. And in terms of headline inflation, the Treasurer and Treasurers across state and capital territories have decided to offer rebates. So we'll have to wait for political decisions on the back of this independent regulatory decision. But so far, history shows that big price changes like this don't impact long term inflation. Andy Park: David Taylor.
7NEWS
26-05-2025
- Business
- 7NEWS
Australian Energy Regulator slammed for increasing power bills by as much as 10 per cent
Australia's energy regulator has been slammed after announcing power bill increases, with one advocacy group saying the news was an 'enormous blow' for those already struggling. Household electricity bills in NSW, Queensland and South Australia are about to go up by as much as 10 per cent following the Australian Energy Regulator's (AER) annual review. Know the news with the 7NEWS app: Download today Standing offer plans in NSW are going up the most, with Essential Energy bills increasing by as much as $228. In South East Queensland, customers will see an increase of $77, while in South Australia, it is estimated to be around $71. The changes don't apply in Victoria or WA at this stage and will come into effect from July 1. Caps on what retailers can charge households and businesses in NSW, South Australia, southeast Queensland are designed to protect the hundreds of thousands of customers who tend to set-and-forget their power plans. Roughly 9 per cent of households and 18 per cent of small businesses are on default market offers (DMO). The DMO is the annual maximum total bill amount energy companies can charge customers on standing offers. Regulators update default market offers to reflect the cost retailers are paying generators for electricity and to have it transported through poles and wires. The move has been slammed by the chief executive of the Australian Council of Social Service, an advocacy group supporting the disadvantaged. Dr Cassandra Goldie said the increases were another blow for low-income earners who are already making 'enormous sacrifices'. 'People struggling the most are going without food, medication and other essentials to try to pay their energy bills,' she said. 'Others are selling belongings or turning to buy now, pay later schemes.' AER chair Clare Savage said NSW was experiencing bigger increases in wholesale costs and transmission than other states. 'In NSW, we've seen some unexpected outages of coal-fired power stations, which can drive up that wholesale cost,' Savage told ABC Radio on Monday. She also flagged boosted investment in networks to make them more resilient to cyber-attack and climate risks, such as the floods devastating parts of NSW. Households and businesses nervous about energy bill hikes have been urged to shop around, with 80 per cent of customers likely to save money by chasing better deals. Energy Minister Chris Bowen acknowledged power prices were putting pressure on households and businesses, pointing to extended bill relief in the last budget. 'It's clear energy bills for Australians remain too high, and we're providing help for people doing it tough as we deliver longer term reform,' he said. Bowen also urged people to shop around, with savings of up to 27 per cent by switching to a competitive market plan. Energy Consumers Australia chief executive officer Brendan French said the safety net system was not working effectively if priced as much as 27 per cent above market offers. 'The sector should be focused on reducing costs at all stages of the supply chain, and making networks as efficient as possible, otherwise consumers risk losing the benefits of the energy transition,' French said.
