ETU Media Releases

ETU Media Releases

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ETU vindicated as Tribunal confirms Australian Energy Regulator got it wrong on power pricing

- Friday, February 26, 2016

The Australian Energy Regulator is being urged to strike a better balance between affordability, reliability and safety after the Australian Competition Tribunal today ruled there were flaws in the modelling and assumptions used to set NSW power prices required the process to be conducted again.

The Electrical Trades Union, which represent the workers that maintain and operate the state’s electricity network, said the decision vindicated their argument that massive cuts imposed by the AER were wrong and would negatively impact on service delivery and network reliability.

ETU secretary Steve Butler urged the AER to take a more sensible approach when remaking their determination, with a greater emphasis on striking a balance between price, safety and reliability.

“The people of NSW don’t just need an affordable energy supply, they need one that is reliable, well-maintained and safe,” Mr Butler said.

“Unsustainably slashing the money spent on maintaining, repairing and operating the network simply leads to inadequate infrastructure that may spark bushfires, fail in periods of extreme weather, or result in a growing number of blackouts and service disruptions.”

Mr Butler also hit out at Opposition Leader Luke Foley over his support for the flawed AER process.

“Luke Foley simply has no idea when it comes to delivering an affordable, safe and reliable electricity network that best serves the interests of the people of NSW,” he said.

Steve Butler also said the decision should now force a rethink of the significant job cuts being pursued by Essential Energy, Ausgrid and Endeavour Energy.

“Thousands of proposed job cuts being pursued by the publicly-owned electricity companies Essential Energy, Ausgrid and Endeavour Energy, were based on the flawed AER determination and should now be abandoned,” Mr Butler said.

“The loss of loyal, highly-skilled workers across the state is short-sighted and will inevitably impact on consumers through poorer services in the future.”

The decision by the Tribunal includes an order that the AER go back to the drawing board and remake their operating expenditure decision using a broader range of modelling and benchmarking using a "bottom up" approach.

That ruling aligned with the findings of an extensive independent review — commissioned by the ETU and conducted by economist Thomas Devlin —  that identified serious flaws in the AER’s modelling and assumptions including:

  • the use of customer density instead of line length;
  • a failure to breakdown operating expenditure into subcomponents, making it impossible to credibly identify potential drivers of inefficiency;
  • an over-emphasis on labour costs, based on questionable research;
  • a simplistic approach to asset life when comparing networks; and
  • relying on benchmarking rather than a ‘bottom up’ approach considering process and structure.

You can read Thomas Devlin's report and findings here.