No easy answers to gas network 'death spiral'

West Australian

13 hours ago

Australians are embracing electrification in the name of decarbonisation, healthier homes and cheaper bills but the shift has policymakers under pressure to insulate a shrinking pool of gas users from price shock.
Ron Ben-David, a former regulator who holds a professorial fellowship with the Monash Business School, describes the flight from the gas network as a "death spiral".
Like a runaway train, once some households start leaving the gas network, the cost of running and maintaining it increases for those who remain, prompting even more to make the switch.
And so on, and so on.
While a win for electrification and cutting emissions, the death spiral has consequences, not least for renters and others who might struggle to get off gas.
Even middle-income households could be challenged to stump up the hefty sums needed to replace gas heaters, ovens and stoves as gas bills continue to rise.
Left unchecked, Dr Ben-David said the problem could undermine community support for the net-zero transition.
"If we lose consumer support, then we can kiss the transition away," he told AAP.
The stranded gas asset issue has not gone unnoticed, with governments, regulators and industry all looking for solutions
Consumer and welfare groups have also been active, with Energy Consumers Australia pushing for a rule change to force developers and new customers to pay the full cost of new connections up front to stop the problem becoming even bigger.
Dr Ben-David believes there are no easy solutions to what is ultimately a political decision.
The debate boils down to "who pays for what", with consumers, investors and taxpayers all in play.
The matter is complicated by the unusual nature of gas distribution regulation.
As natural monopolies, gas network companies are not allowed to set their prices.
Prices must be approved by the Australian Energy Regulator under what is often described as a "regulatory compact" that ensures investor funds are returned to them during the life of the assets.
Forcing investors to cop the risk asset of stranding, therefore, allegedly amounts to a broken compact, Dr Ben-David said, making network stranding more complicated than just writing off a dud investment.
For gas network companies, "accelerated depreciation" is the answer. That effectively means asking the regulator to account for the shortened life spans of their assets so they can push up customer prices in the near term to hasten the recovery of their investments.
Governments could also help absorb some of the shrinking customer base costs but state and federal budgets are already under strain and bailing out gas networks could be politically contentious.
Dr Ben-David has put forward another option.
Under his proposed model, electricity distribution networks would underwrite the shrinking gas network.
There's more to his thinking, but using income generated by electricity distribution companies - and their customers - to underwrite declining gas networks is a key element.
It's based on the rationale that electricity networks would continue to expand and have long life spans in a low-carbon economy.
While he concedes it is controversial to be adding to electricity prices to pay off gas networks, he argues the other options are just as unappealing.
He also put the call out for better ideas, and fast.
"The best time to solve a problem is before the problem takes off," he said.