“Companies need the opportunity to have the merits of a case reviewed by an independent third party - a judicial review is not a merit review,” Boulton told EnergyReview.net before heading to Sydney to start his new job as head of Powerco's parent company Babcock & Brown Infrastructure.
A judicial review was limited to investigating the legality of decisions taken and analysis done, not comparing the merits of different systems and outcomes.
“My challenge to the ministers concerned is that if they are so confident of the analysis and competency of their regulatory bodies, then there should be nothing to fear from a merit review.”
Boulton said Vector and Powerco – the largest energy infrastructure companies in this country - had both independently sought High Court reviews of some aspects of the Commerce Commission’s recommended regulation of their gas pipeline services.
Energy minister Trevor Mallard and the commission said customers would benefit from gas control, but neither had the power to ensure any benefits were passed on to customers.
Last month Mallard announced plans to regulate Vector and Powerco’s gas pipelines services, saying gas consumers should expect to see price decreases as a result of such Commerce Act regulation.
Mallard said the commission had found Powerco and Vector were charging excessive prices and making excessive returns.
The commission found Powerco and Vector were earning after-tax returns on capital of 12.7% and 13.5% respectively, and estimated the average Vector pipeline customer could see a drop of 18.5% in pipeline prices, while the average Powerco pipeline consumer could receive a 12.2% decrease.
But Boulton said that five years ago the lines component of energy bills was about 40% of the total costs, with transmission equating to about 10%, and generation and retailing making up the remainder.
Current energy lines costs were less than 30%, transmission about 10%, but generating/retailing now accounted for about 60% of total costs.
“Why is it that the only part of this that is not regulated is the only part that is increasing?” he asked.
Competitive markets were supposed to bring about price reductions, but in reality that was not happening. “The energy sector stands alone in this juxtaposition.”
Boulton said that after a decade or more of heavy-handed regulation in Australia, several states were now allowing infrastructure companies substantial increases in capital and operating budgets, primarily to prevent assets being over-utilised and to reduce the associated utilisation risk.
“The affects of asset gauging are finally coming home to roost; new detailed engineering analysis is now showing what has been happening during the past 10 to 15 years in the argument of continued energy efficiency,” Boulton said.
