MEDIA RELEASE                                                                                                 MARCH 2016

The Asset Management Council has welcomed the recent decision by the Australian Competition Tribunal to set aside the determination of the Australian Energy Regulator, in terms of its approach to reasonable operating expenses.


In mid 2015 the Regulator determined the maximum amount of revenue that the electricity generators could levy customers up until 2020. That determination would have resulted in price cuts of up to 31 percent to customers. As a result, a number of electricity network businesses in NSW and the ACT asked the Tribunal to review the approach taken by the Regulator. The energy businesses argued that the methodology employed by the Regulator would not provide sufficient income for them to meet their obligations to operate safety and reliably. They demonstrated that such a significant reduction in revenue will result in higher rates of equipment failure, leading to (among others) of a doubling of the likelihood of catastrophic bushfires.
To support their argument, the energy businesses convinced the Tribunal that proper asset management principles and processes using a ‘bottom-up’ approach should be taken into account to determine the maintenance activities required to maintain a safe and reliable network. These principles can be found in the ISO55000 suite of Asset Management standards, which advocates the use of a data-driven, quantitative risk-based approach to determine an organisation’s maintenance program.
Chief Executive Officer of the Asset Management Council, Dr. Anne Gibbs, welcomed the Tribunal’s decision to set aside the Regulator’s draft determination of reasonable operating expenses. “The approach taken by the Tribunal reinforces our view that a scientific asset management approach is necessary to assure the long term reliability, safety and integrity of the nation’s assets” she said.
The Tribunal ruled that in future, when the AER decides the operators’ reasonable operating expenses, it must:
1. Use a broader range of modeling and benchmarking against Australian businesses; and
2. Include a “bottom up” review of the operator’s forecast operating expenses.
The Asset Management Council of Australia is an internationally recognized organisation that provides information and guidance on asset management across a multitude of industries and professions. Further information on the Tribunal’s decision can be obtained by contacting Mr. Peter Kohler from the Asset Management Council by phone 03 98192515 or email peter.kohler@amcouncil.com.au

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