Reforming the economic regulation of Australian electricity networks_May24

Reforming the economic regulation of Australian electricity distribution networks 5 Executive Summary The cost of building, replacing and maintaining the poles, wires and substations of the electricity distribution networks impacts all households and businesses that pay electricity bills. [...] We also need to understand the likely increases in use of the distribution networks because of the electrification of gas use in homes and businesses, and the electrification of transport. [...] Suggestions of capex preference in DNSP expenditure decisions Several reports and reviews have suggested that an outcome of the economic regulation of DNSPs and how it is administered is a bias towards capital investment and therefore increasing the size of the RAB.42,43,44,45 In economic theory, the Averch-Johnson (A-J) effect predicts the introduction of rate of return regulation will increase t. [...] In 2018, as part of its first review of the electricity network economic regulatory framework (ENERF), the AEMC published a report by Frontier Economics that surveyed the use of totex in several jurisdictions, including Great Britain, Germany, the Netherlands, and in Victoria during the early 2000s.54 However, despite the support of ENA for totex, the AEMC was equivocal, stating that: “Expenditure. [...] The risk of repeating the 2006-2015 over-investment Australia is ahead of the rest of the world on the integration of rooftop solar, but there is a danger that under the current regulation, distribution networks will be tempted to spend more capex, rather than use DER to provide network services.