Energy company SP AusNet’s Victorian electricity customers could be forced to make up the shortfall in the company’s insurance cover for the Black Saturday bushfires following a determination by the Australian Energy Regulator last week.

The regulator has released a draft decision on what it calls SP AusNet’s “insurance pass-through event” which allows the company to recoup losses resulting from events that its insurance does not fully cover by raising its charges to consumers.

Plaintiffs in two class actions led by lawyers Maurice Blackburn contend that faults in SP AusNet’s electricity network caused the Murrindindi-Marysville and Kilmore East-Kinglake fires on February 7 2009. They are seeking as yet unspecified damages from the power group.

The two fires killed 159 people and destroyed 1780 homes. SP AusNet, a listed company with a market capitalisation of $3.5 billion and 52% owned by Singapore Power, is defending the claims. It says because the extent of the two fires’ losses is not known, “therefore it is not known whether SP AusNet’s insurance will be sufficient to cover all losses associated with the February 2009 bushfires”.

SP AusNet has not said what level of insurance cover it holds. But analysts refer to the 2005 float of electricity distributor Spark Infrastructure, which reported at the time it had cover of between $800 million and $1 billion.

Given the relative size of SP AusNet’s asset base to Spark’s, it could have cover of $1 billion- $1.3 billion.

If SP AusNet is allowed to pass any insurance losses through to consumers the whole of Victoria would be affected, because the company owns the high-voltage transmission lines that connect power stations to local distribution networks.

Maurice Blackburn class action principal Andrew Watson told insuranceNEWS.com.au that SP AusNet should not ask power consumers to support its liabilities.

“This is a company that has significant insurance coverage, huge assets, the ability to raise capital and it has generated around $700 million in profits since the Black Saturday bushfires,” he said. “We strongly believe they should explore other mechanisms before even considering a price hike.

“If SP AusNet is ultimately deemed responsible for these devastating bushfires, there is no doubt they should compensate the victims for their suffering.

“It’s extraordinary they are now looking at how they can then slug Victorians – including some of the victims of the fires – with higher electricity prices when they have several other options.”

SP AusNet says it is “currently conducting a comprehensive review of the [Australian Electricity regulator’s] draft decision to determine its full impact.”

The regulator will consult on the draft determination until September 12. Insurance pass-through rights are not automatic and SP AusNet must apply and seek a specific ruling from the regulator to use them.