Big boy electricity distributors `overly rewarded’


David Headberry, representing the Major Energy Users, asked the the Australian Energy Market Commission: "Where is the lack of investment that needs encouraging by all of these rule changes?" One of the high-level (NEM) principles was to encourage investment, he said. "Do you know what the key driver investment is? It’s money. So what we had a look at is how the utilities index has been going over the last five years compared to the ASX 200 which is the base line, and the red line – quite clearly, the red line is the one that really shows how the utilities index is tracked. When you convert that and put it into perspective and you look at who’s in that utilities index – Duet, Hastings, Alinta, AGL and the others – they’re the biggies at the top other than the government-owned ones, and what’s more, they comprise more than 90 per cent of that index."

"They (the distributor-retailers) were all awarded a market risk premium (MRP) of 6 per cent and a beta of 1 per cent. The ASX shows an MRP of 6.05 over the last five years, and CommSec calculated a beta of 1.08. When you look at the utilities index, it’s a different story. They have actually shown an MRP of 11 per cent and have a beta of .31.

So where is the problem? "So they’re being overly rewarded compared to the rest of industry. Do we have to change the rules just to encourage further investment, and that’s really the point we’re coming to. Is there a problem?"

Reference: Australian Energy Market Commission, Transcript Of Proceedings, 8 March 2006, Public Hearing Rule Proposal, Draft – National Electricity Amendment (Economic Regulation of Transmission Services) Rule 2006. Contact: Mr J. Tamblyn, Chairman; Ms L. Carver, Commissioner; Mr I. Woodward, Commissioner.

Erisk Net, 8/3/2006, p. 31

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