Energy bills are about to get a lot cheaper - and state governments are freaking out about it

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After years of skyrocketing energy prices, and accusations of “gold plating” by the electricity industry, the cost of power is set to fall dramatically and the New South Wales and Queensland governments aren’t happy.

The Australian Energy Regulator (AER) is the independent body overseeing energy markets along the eastern seaboard. It has the power to set prices and today issued final decisions on what electricity distribution and transmission businesses in NSW, the ACT, Tasmania, South Australia and Queensland can charge over the next four years. In most cases, it’s a massive reduction on what the power companies were seeking, which will have profound implications for state government budgets.

AER chair Paula Conboy did not mince words in announcing cuts of around 30% to the budgets sought by power companies in NSW.

“The AER has access to a consistent body of evidence indicating that the distribution businesses in NSW and the ACT are not operating as efficiently as other networks,” she said. “Any costs above efficient levels will need to be funded by the network owners, not customers.”

Conboy argued demand had fallen and was expected to remain flat over the next four years, putting less strain on the network and investment needs.

“The perceptions of risk which increased during the global financial crisis, when the AER made its last determination, are now decreasing. This means that the lower cost of capital for debt and equity translate into the lower financing costs necessary to attract efficient investment,” she said.

The AEC released estimates that prices in NSW will drop between 5.3% and 11.9%, depending on the supplier. It predicts Essential Energy bills should fall by 11.9% or around $313 per household.

The comments were echoed in other states, with Queensland customers expected to save around $132 annually, while SA Power Networks customers can expect to save around 10% or $197. Tasmania’s fall is a more modest $24.

But the loss in revenue also means lost income for governments that draw down dividends from the utilities, with rates of return likely to fall dramatically off the back of the AER rulings.

In Queensland, where the new Labor government abandoned plans to privatise state-owned electricity companies, the 23% cut to Energex and 27% for Ergon Energy could see more than $100 million evaporate from the state’s income, with the two businesses normally tipping around $800 million into the state’s coffers.

In NSW, where the Baird government plans to lease out the infrastructure, the AER decision is likely to dramatically reduce the sale price. Energy minister Anthony Roberts said he was “disappointed that the AER did not provide a transition period for Networks NSW to implement the necessary reforms safely and responsibly”.

Treasurer and industrial relations minister Gladys Berejiklian warned thousands of jobs could go as a result of the determination.

“We will work with employees and industry to ensure impacts on the workforce are managed in a sensitive and orderly way,” she said

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