What is the Regulatory Proposal?
The electricity distribution network that Essential Energy operates is funded through charges that form part of the bill issued by your retailer.
Each bill covers everything from electricity generation to transmission, distribution, retail and government charges. Essential Energy’s responsibility is the distribution network charges, and these make up around 37 per cent of a typical residential bill.
Essential Energy’s business is regulated by the Australian Energy Regulator (AER) under the National Electricity Rules (NER). This means most of our distribution services are subject to price controls determined by the AER, with prices set every five years.
Essential Energy submitted a draft Regulatory Proposal for the 2019–24 regulatory period to the AER on 30 April 2018. The AER largely accepted these plans, acknowledging Essential Energy is “working hard” to improve efficiency and lower operating costs to provide greater benefits to consumers.
A revised Regulatory Proposal was then submitted in December 2018. The AER issued its Final Determination on Essential Energy’s revised Proposal on 30 April 2019, with price changes coming into effect from 1 July 2019.
The revenue we need to meet customer expectations
The final determination from the AER is positive, with the AER largely accepting Essential Energy’s revised Proposal. The determination results in a 1.68 per cent real reduction in Essential Energy’s annual revenue across the 2019-24 regulatory period.
The decreases in revenue from our revised Proposal have mainly come from reductions in the allowed rate of return due to lower interest rates, as well as reductions in tax allowances to align with a change in the AER’s tax approach.
The AER estimates this will mean that by the end of the 2019–24 regulatory period (as at 30 June 2024):
- average network tariffs will have increased by around 3.4 per cent ($ nominal) compared to the 2018–19 level (as at 30 June 2019)
- average annual electricity bills will increase by around 1.2 per cent ($ nominal) for residential or small business customers on our network compared to the 2018–19 level (as at 30 June 2019), holding all other components of the bill constant.
This suggests that average annual bills will be around $24 and $111 higher for residential and small business customers, respectively. These price increases for Essential Energy’s customers are significantly below the rate of inflation.
How was the Proposal developed?
Consultation is at the heart of how Essential Energy does business – so we consulted with a broad range of customers and stakeholders, who told us their priorities are safety, affordability, encouraging renewables, reliability, bill itemisation, good customer service and communication and innovative technologies.
In fact, our engagement process involved more than 3,500 interactions with our customers and stakeholders over two years.
Our industry-leading work to ensure customers and stakeholders contributed to the development of our 2019-24 Proposal was recognised by Energy Consumers Australia and Energy Networks Australia when we received the 2018 Consumer Engagement Award.
Investing in the future
This determination from the AER reflects the work being undertaken right across our business to modernise the network and improve efficiencies as part of the transformation program. The approved plan for the next five years maintains network safety and reliability and includes investment in new technologies to service customers in a decarbonised, decentralised and digitised energy future.
Our customers are seeking more choice in how they source and consume electricity. We will be working to meet these changing demands, trialling new technologies and facilitating renewable energy connections to the existing network. Our plans also include upgrades to the network in areas prone to outages.
- As a regulated electricity distribution business, Essential Energy is subject to economic regulation by the AER under the National Electricity Rules. Distribution services are subject to revenue and/or price controls set by the regulator, with prices set every five years.
- The Australian Energy Regulator (AER) has locked in affordable network charges for the next five years, with distribution network charges increasing less than the rate of inflation.
- The AER has determined our revenue requirement for 2019-24 to be $5.079 billion ($ nominal).
- The average annual electricity bill for a residential and small business customer on Essential Energy’s network is estimated to be around $24 and $111 higher, respectively, by the end of the 2019–24 period.
- Essential Energy is on track to deliver close to a 40 per cent reduction in network distribution charges over the five-year 2014-19 regulatory period.
- The AER has commended Essential Energy for its efficiency gains, with network expenditure at some of the lowest levels in 20 years.
- The AER acknowledged we worked hard to improve our efficiency and those efforts are paying off for our customers in the form of a safer, reliable and more affordable electricity supply.
Find out more
Read the 30 April media release - Essential Energy customers benefit from network reforms
Visit the Final Determination page on the AER website
Tariff Structure Statement
Tariff Structure Statement Overview
2019-24 Revised Tariff Structure Statement