Coal fired stoush misses main culprit for soaring power bills

Electricity power bill price pain from network charges ignored


Farm Online News
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Electricity supply controversy ignores critical consumer issue

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While politicians bicker over where our power comes from, people are growing increasingly alarmed about their electricity costs, which are dominated by soaring network charges.

The Federal government has been tying itself in knots over the source of our electricity as the great coal versus renewables debate hogs headlines.

Meanwhile, farm groups across the country are speaking out against the power price pinch, highlighting the crippling import of electricity network charges.

The latest hotspot is Queensland, where the Queensland Competition Authority is  consulting over price determinations that state-owned regional network operator Ergon can charge in the 2018-19 financial year.

Advocacy group Queensland Electricity Users Network is mounting a campaign calling for the state government to reduce its expectations for revenue generated by Ergon.

“Power bills are at unsustainable levels and must fall substantially,” said QUEN coordinator Jennifer Brownie.

“Farmers and small businesses are struggling with their power bills, and many have gone into debt.”

One analyst cited the soaring profits of network operators in Qld in particular as as a major factor behind electricity customers’ power bill hikes.

Network operators charge retailers for use of their ‘poles and wires’ infrastructure that distributes electricity from generation to the power socket.

South Australia, NSW and Victoria have privatised their state-built electricity networks, while Queensland kept it in public ownership.

Either way, a network charges are perhaps the most significant factor in a electricity power bill.

Rising input costs such as electricity are particularly damaging for price-taking industry like farming, which largely sells into cutthroat commodity markets.

Rising input costs such as electricity are particularly damaging for price-taking industry like farming, which largely sells into cutthroat commodity markets.

Last year the Australian Competition and Consumer Commission found a whopping 48pc of the average power bill is made up of network charges and it reckons gold plating of network assets will burden electricity customers “for decades to come”.

QUEN sought public feedback in the lead-up to Ergon’s current round of price-setting, with manufacturing, small business, farming and residential electricity users posting comments on the advocacy group’s website

A post from a Far North Qld supermarket said “electricity is now the main threat to my business.

“I have had the business for thirteen years and have always made a profit

“The electricity is so expensive that we are unable to replace all the stock we need and therefore there are holes on the shelves where I cannot afford to purchase new stock.

“Sales do seem to be improving but not fast enough to compensate for the massive increases in electricity prices.”

Queensland irrigators in horticulture, cane and dairy have raised the alarm over chronic problems with their power bills.

Harrisville farmer and Dairyfarmers Organisation vice president Ross McInnes says power prices says the cost of running a motor for a high pressured pump jumped from less than $3 an hour to more than $9/hr.

Harrisville farmer and Dairyfarmers Organisation vice president Ross McInnes says power prices says the cost of running a motor for a high pressured pump jumped from less than $3 an hour to more than $9/hr.

Expensive tariffs for farmers are a particular concern.

Last year, between July and October, QUEN conducted a survey of regional businesses.

Compass Research conducted polled businesses in four Qld regions, which included agricultural and industrial hotspots that largely depend on Ergon for electricity: Mareeba, Southern Downs, Whitsundays and Mt Isa.

The survey questioned 741 businesses between July and October last year. QUEN said most businesses experienced increases around 15 to 20 per cent in the past two years as regulated retail electricity prices for a typical small business rose 11pc in 2016-17, and 4pc in 2017-18.

The survey found 70pc of businesses experienced lost profitability and just 22pc were willing and able to pass those costs on to their customers.

Why are network charges so significant?

Retail electricity prices have risen 63pc in the past ten years, on average.

Residential and especially industrial customers bills have doubled, or even tripled where there is limited competition for tenders.

The ACCC has identified four key regulatory problems which had contributed to a “severe electricity affordability problem”: Gold plating, lack of competition among ‘gentailers’ that generate and retail more than 60pc of in most states, a complex electricity market which lacks transparency, and a merits review system which allows networks to challenge price rulings from the Australian Energy Regulator (AER) in court.

Gold plating

In the past decade the AER approved network operator investment in vast infrastructure upgrades, which were often predicated on questionable forecast of growing electricity demands, which has since failed to materialise.

Network operator’s asset base had grown 400pc in the past 15 years, while forecasts for future demand were wildly inflated.

Between 2007 and 2012 Queensland projected almost 1200 megawatts more in peak demand than was actually required, while NSW forecast about 700mW more than it needed, and Victoria 300mW more. The result? Asset value for each network connection in Australia is nine times that of the U.K.

An unfortunate quirk of regulation let the network operators borrow cheaply from government, typically at 4pc to 5pc interest, and claim capital costs of up to 10pc.

The cost was passed through electricity retailers and onto consumers’ bills. The difference between the interest payment and capital costs was pocketed as profit.

Industry profits rose 67pc between 2007 and 2011 bills rose about 40pc over the same period.

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