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.

Unions have warned that electricity consumers have been condemned to poorer services, reduced maintenance, and slower emergency response times following the decision of the Australian Energy Regulator.

The AER decision, which takes effect from July 1, sets the revenues that publicly-owned network companies Ausgrid, Endeavour Energy, TransGrid and Essential Energy can charge private electricity retailers.

The final determination imposes cuts to revenues of 33 per cent for Ausgrid, 31 per cent for regional provider Essential Energy, 28 per cent for Endeavour Energy, 25 per cent for TransGrid, and 32 per cent for the ACT’s electricity network operator ActewAGL.

The Electrical Trade Union and United Services Union, which represent workers at the  electricity network companies, said the savage cuts would lead to substantial reductions to service delivery, maintenance, and emergency response times.

They also highlighted that neither the AER, nor the NSW Government, had any legal power to force private energy retailers to pass price reductions on to consumers after retail electricity pricing was deregulated by the Baird Government in July 2014.

ETU secretary Steve Butler said there was no doubt that the response to last weeks major storm event, which cut power to a quarter of a million homes, would have been substantially slower if these cuts had already been in place.

“The Federal Government’s energy regulator has condemned the people of NSW to more blackouts, slower reconnection times, reduced maintenance, and a loss of specialist skills, all without guaranteeing consumers will see one cent of savings on their bills,” Mr Butler said.

“We saw last week why having adequate numbers of highly skilled professionals working on the electricity network is essential.

“Had these cuts already been in place there is no doubt that hundreds of thousands of consumers would have endured significantly longer delays in having electricity services restored to their homes.”

USU energy manager Scott McNamara said that while the cuts could result in up to 4,000 job cuts across NSW, unions were working with the NSW Government to find alternatives.

“The AER determination is about the revenue network companies can recover from their ‘regulated asset base' and is not connected to employee numbers,” Mr McNamara said.

“The AER determination does not limit the amount of income these businesses can generate from other sources, including in area’s such as contestable work.

“There are many alternatives to mass sackings, and we will not allow management to use the AER determination as an excuse to get rid of thousands of workers ahead of the NSW Government’s planned privatisation.”

Both unions highlighted their commitment to work with the network companies, Networks NSW, and the Baird Government, to identify alternatives to job and service cuts.

“There are a range of alternatives to job cuts that we have already identified,” Mr Butler said.

“There include re-entering the market for contestable work, eliminating the executive bonus scheme, looking for opportunities around the National Broadband Network rollout, retraining and redeploying displaced workers, and using early retirement schemes.

“We are also deeply concerned for current and future apprentices and their ability to secure full time ongoing employment.

“Cuts of this scale risk losing a whole generation of workers — and the specialist skills they possess — leading to inevitable skills shortages in the future.

“One thing that can be guaranteed is that no region of NSW will be spared if massive job cuts are implemented.”

Mr McNamara said the AER had to be honest with consumers, and admit they were powerless to ensure any cuts flowed through to power bills.

“The AER is powerless to force electricity retailers to pass on these reductions, and the experience of Victoria has been that similar reductions simply resulted in retailers taking the additional money as profit,” he said.

“So consumers will receive poorer services, but may not see any financial benefit.

“The AER seems to be relying on the goodwill of private retailers to pass on possible saving.”

The unions also highlighted that the AER was bound by a set of rules when making determinations, and they these had been set out by energy minsters from each state and territory.

They were last agreed to in 2012, when Chris Hartcher was Energy Minister in the O’Farrell Government.

Power industry unions are warning NSW consumers to expect increased blackouts, reduced safety, and massive cuts to jobs and training following the federal energy regulator’s proposal to slash electricity network spending by up to 60 per cent.

The Electrical Trades Union and United Services Union, which represent the majority of the 12,000 Ausgrid, Endeavour and Essential employees across NSW, said the Australian Energy Regulator’s draft determination would impose drastic cuts to the money available to run, maintain and upgrade electricity infrastructure during the next five years.

Off the back of major infrastructure upgrades during the past five years, which have increased reliability and capacity in times of peak demand, the network businesses had sought to reduce expenditure by 40 per cent.

The AER rejected that proposal, instead delivering cuts of up to 60 per cent, which if implemented will result in more than 4,600 job losses across the state.

The unions said these cuts would come on top of 2,300 jobs already lost at Ausgrid, Endeavour and Essential since July 2012, almost halving the size of the workforce in just a few years.

“Massive expenditure cuts of this scale, introduced overnight, will have a massive impact on the reliability of electricity services and the safety of workers and members of the public,” ETU NSW secretary Steve Butler said.

“Blackouts will be more likely on the hottest and coldest days, as power demand surges, reconnections will be slower following natural disasters, bushfire risks are likely to increase, and the safety of workers and the public will be put at risk.

“It will also see thousands of jobs cut, many in rural and regional NSW, as well as all but eliminate any intake of apprentices across the sector over the next five years.

“For the federal regulator to impose cuts so far in excess of what the electricity network businesses themselves recommended — without any risk assessment on the impact to safety and reliability — reveals a complete failure to consider the public interest.”

USU energy manager Scott McNamara said the AER report had made no provision for redundancies, requiring job reductions that were unsafe and illegal under current enterprise agreements.

“The energy regulator has completely failed to examine how cuts of this magnitude would take place, with no provision for the redundancy payments that would be needed for thousands of workers, and no examination of how it will impact safety,” he said.

“These job cuts are not only illegal under the current enterprise agreements, but they would breach the Federal Government’s own Fair Work Act.

“These cuts claim to be modelled on practices in Victoria and South Australia, but the AER fails to acknowledge the fact that both these states suffer from load shedding — where power has to be cut to consumers because the network can’t meet demand.

“In Victoria, more than 100 lives were lost on Black Saturday in bushfires a royal commission found were sparked by poor maintenance on the electricity network.

“The AER would see a reduction of $460 million in the next four years in the money spent on managing vegetation around power lines to reduce bushfire risk.

“The last thing we want is for the people of NSW to end up with poorer services and reduced safety because the Federal Government’s energy regulator imposes unsustainable cuts to our electricity network.”

The unions said that, like the network businesses, they would be making submission to the draft determination opposing the scale of the cuts.

“The AER have got it wrong by not taking into consideration legal obligations and true operational requirements of the network businesses,” Mr Butler said.

“We believe in a publicly owned electricity network that is efficient, safe and affordable.

“A slash and burn approach to spending will deliver the opposite outcome, which would be bad for consumers throughout the state.”