One main area of concern is the tougher penalties for interruptions to power supply, forcing companies to pay customers $100 if they have 20 hours of unplanned power cuts in a year.
United Energy Distribution said that while the final report was an improvement on the draft, it was considering appealing some key aspects in light of the current business environment and future regulatory certainty and practice.
These aspects include the treatment of contracts with its service providers, namely Alinta Network Services and the companies’ accountability to customers for power outages.
“The UED supports the…businesses being accountable for reliability and service levels, but is concerned the ESC’s extremely complex incentive scheme may penalise the company,” said CEO Hugh Gleeson.
“UED will consider the merits of an appeal following the completion of a full analysis of the final determination.”
Also considering an appeal is the Australian Gas Light company. Managing director Greg Martin said he was still reviewing the 765 page final report, but added it appeared the “substantial errors of fact” identified by AGL in the draft decision had been addressed.
“Following its release, AGL said it strongly disputed key elements of the draft decision,” said Martin.
“We had submitted independently justifiable forecasts of the costs of operating, maintaining and investing in the distribution network to provide reliable electricity supply, meet load growth and connect new customers.”
But Martin said AGL was considering whether to appeal aspects of the determination, which takes effect on January 1, once a full review of the impacts on the network business had been made.
The determination was expected to have an immaterial impact on earnings before interest, tax and depreciation (EBITDA) for the Victorian network in this financial year against the 2004-05 reported result.
“There is no change in AGL’s 2005-06 earnings guidance as a consequence,” said Martin.
Following industry concerns that new investment would not go ahead if the price reductions remained at 23%, as outlined in the original draft, the final report dropped the figure to 12%. This will be followed by a 1.2% reduction each year for the following four years.
In its second report since Victorian power was privatised in the mid-1990s, the ESC said $3.3 billion would be spent on capital works over the next five years, a 43 per cent increase on the amount spent in the current regulatory period. An additional $2.3 billion would also go into operating costs.
Following the result, Singapore Power, which operates as SP AusNet, and Hong Kong’s CKI, which owns Citipower and Powercor – Victoria’s biggest distributors, are collectively expected to seek up to $3 billion from the market by the end of the year, according to The Australian.
The two companies were waiting on yesterday’s decision before proceeding with their IPOs to list on the ASX.
The newspaper said it understood that a CKI Australia IPO would seek up to $1.8 billion, while Singapore Power was likely to raise between $1.2 million and $1.5 billion for a half-stake in its Australian-based business.
But Citipower and Powercor CEO Shane Breheny said the companies did not agree with ESC's approach to the incentive regulation.
“Our businesses are not being sufficiently rewarded for outperforming the regulator’s own efficiency and reliability targets,” he said.
Breheny said further analysis of the document was needed before the companies could decide on further action.
