Essential Services Commission plans upfront gas connection charges for Victorian households

Victorian households and businesses face hefty upfront fees to secure a gas connection as the state ramps up efforts to phase out the popular energy source.

Households are set to be slugged almost $2400 “upfront” and businesses almost $31,000 to connect to the gas network from 2025, as a push to wean Victoria off the popular resource accelerates.

The plan by the state’s energy regulator would replace current rules that allow for network connections to be paid back over time through network charges on bills.

It comes alongside a looming ban on connections in new housing estates if they require a planning permit after January 1 next year.

The state’s Essential Services Commission has released a report on proposed new gas rules, which aims to fill the gaps around the Allan government’s ban, aiming at commercial and industrial properties and housing developments that have already applied for permits.

Gas connections would need to be paid upfront under a plan by the state’s energy regulator.

The ESC says it would bring the industry into line with electricity and water sectors where new houses pay between $600 and $2400 to connect, and ensure the network isn’t being built out further and costing all customers more to pay back over time.

The cost of connecting gas to a new home varies depending on where people live, but the ESC says the average is $1778-$2378 that would be paid upfront under proposed new rules.

For commercial and industrial customers it would average between $7111 and $30,993, depending on the location and size of the premises.

It says that given Victoria is locked on a path to net zero emissions by 2045, many new assets would not be paid back by the time the state quits gas, so it was best to limit any built out of the network.

“We propose a new connections framework which will require new customers to pay the full upfront costs of gas connections,” the report says.

“This will marginally reduce the extent to which the cost of future stranded assets may fall on customers who have more barriers to disconnect from the gas network, such as lower-income households and renters.

“Existing customers would benefit from connection costs being recovered from new customers who connect, leading to reduced average costs for all existing customers.

“However, existing customers would lose the distributional benefits from additional volumes from new connections, and average costs associated with existing investments in the network would be higher.”

Samantha McCulloch says making gas more expensive adds to the cost of living hit. Picture: Tom Huntley

The ESC says that in turn, this could be offset by distribution companies having fewer costs to connect more customers, meaning some network charges could be reduced.

The problem of stranded gas assets in Victoria has been referred to by industry figures as a “death spiral”, because people who can afford to quit gas leave behind assets for a shrinking pool of customers to pay off.

Social services groups have warned that this disproportionately impacts poorer households who can’t afford to electrify their homes, and renters.

Gas distributors in Victoria have already received permission to charge an extra $333m over five years for accelerated depreciation – effectively fast-tracking their returns on investments.

Australian Energy Producers chief executive Samantha McCulloch said government moves to ban new gas connections and increase gas connection fees “will only add to escalating cost of living pressures for Victorian households and businesses”.

“Millions of Victorian households rely on gas and taking this choice away from consumers reduces competition and increases energy costs,” she said.

“The Victorian government’s anti-gas agenda continues to isolate the state from sensible energy policy – putting more demand on an already strained coal-based electricity grid that the independent energy market authority warns is facing risks of blackouts.”