NSW power asset sale faces regulatory threat

Plans by Australia's New South Wales (NSW) state government to sell its power infrastructure assets may be affected by a regulatory ruling ordering state-owned businesses to cut their spending by between 25-33pc until 30 June 2018.

The sale of transmission business TransGrid and power distribution business AusGrid is the last of the state-owned assets to go on sale. NSW has already sold its coal and gas-fired power generation assets. More than 80pc of electricity generated in NSW is from coal-fired plants.

The Australian Energy Regulator (AER) today ruled that AusGrid can only spend A$6.58bn ($5.07bn) during the four-year period instead of the A$9.75bn AusGrid initially proposed, or 33pc lower. TransGrid can only spend A$2.19bn instead of A$2.91bn it first proposed, a reduction of 25pc.

Power transmission and distribution business are regulated in Australia because of their monopoly business position. The AER has the authority to set what returns these businesses can receive on their investments. AER set an allowed rate of return of 6.75pc for TransGrid instead of the proposed 8.65pc.

A lower return on investment could affect the profitability of the networks, and in turn their valuation and what the NSW government could receive for their sale. Network charges account for a higher proportion of electricity bills for business consumers than residential.

A report by Australia's upper house of parliament, the Senate, criticised the current power regulatory system for not penalising transmission or distribution businesses for making bad investments, as they are still able to obtain a return for all the funds they invest in their respective networks.

The NSW power grid sale will be done through a 99-year lease of a 49pc stake in the transmission and distribution companies, the ruling Liberal-National party coalition government said.

km/rjd

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