Wednesday, December 8, 2010

Power bills a shocker. Why?

N THE three years to September, the price of electricity for the typical Melbourne home rose 54 per cent. The price of water rose 62 per cent, the price of gas rose 28 per cent. It was one of the key reasons the Brumby government lost office.

The Bureau of Statistics reports that over the three years, these price rises were the highest of any capital city. In just two years, the St Vincent de Paul Society estimates, "Victorian households' annual energy costs have typically increased by more than $300".

But why? We all know why water prices have risen: the desalination plant, which the Auditor-General says will cost $5.7 billion to build and operate until 2040, plus Melbourne residents paying for a pipeline they will not be allowed to use, except in emergencies. For rising water bills, blame the government.

Electricity is another matter. Victoria's electricity market is the most open and competitive in Australia. Since it was privatised by the Kennett government, the state owns none of it, and now has little control over it. State policies had a part in our rising power bills, but only a part.

Our generators are all privately owned, and free to charge what they like. The transmission network, as in other states, is owned by the government in our case, the government of Singapore. So are three of our five electricity distributors, in whole or part, while the other two are owned by a Hong Kong company.

The state government used to regulate the prices of transmission (the high-voltage lines) and distribution (the poles and wires taking electricity to your home and workplace). But now they are controlled by the Commonwealth, through the Australian Energy Regulator. And the 13 electricity retailers who handle your accounts are no longer regulated by anyone, after the Brumby government decided in 2008 to end price control.

All have played a role in pushing up your power bills as have policies to lift use of renewable energy, especially solar, and the Brumby government's decision to require every home to have a smart meter.

Start with the generators. A decade ago, Australia had a glut of power, so their prices were cheap. Not now. Generation prices have risen a lot: in part, because demand has caught up with supply, and in part because our new plants run on gas or wind, and that costs more than coal.

Transmission prices jumped in 2008 to pay for old high-voltage lines to be replaced by new ones. And distribution prices have risen sharply, and are set to keep rising.

In October, the Australian Energy Regulator gave the five distributors a green light to raise prices on average by 34 per cent over the next five years. While it told us this would raise future retail prices by just 3 per cent a year from 2012 to 2015, that's because distributors' charges make up just 40 per cent of your power bill.

The regulator estimates by 2015, these price rises will increase the typical household's annual bill by $220. If generators and retailers lift their charges at the same rate, the typical household will be paying $550 more by 2015.

Why? Even after the regulator cut $1 billion off the distributors' bids, they will increase investment by 45 per cent over the five years, to cope with rapid population growth, to replace old poles and wires, to meet new post-bushfire standards and to pay for smart meters.

The Department of Primary Industries concedes that the rollout has added $68 to the typical household's power bill this year, but says this will be outweighed over time by the benefits. Maybe, for some, but right now the costs seem more certain than benefits.

Then there's the retailers. Origin has just flagged a 6.8 per cent rise next year for customers on its standard offer that is, those who don't threaten to switch retailers. Most homes by now, however, are on contracts, paying prices called market offers.

The state requires each retailer to publish its market offers on the YourChoice website ( But there's a big catch: there is no law that requires them to offer you the price on that website.

A review for the commission in October 2009, by the Wallis consulting group, found 11 of the (then) 14 retailers quoted households higher peak and off-peak charges than those published on the website. The average peak rate on the website was 16 per kilowatt hour, but most quoted customers at least 17, and some more than 20.

For small business, the gap was even worse. And retailers often refused to provide written confirmation of a quoted price, even if the law requires it.

OK, Ted, we have a problem. What do we do about it?

The Baillieu government has pledged to pay 17.5 per cent of the power bills of pensioners and others on concession cards. It will also consider suspending the rollout of smart meters, pending a new cost-benefit analysis and a separate review by Treasury, aiming to make it better value for money.

St Vincent de Paul policy manager and electricity watchdog Gavin Dufty applauds the Coalition for its "well-targeted" subsidy to concession card holders, and for seeking a pause on smart meters.

But he argues for wider reforms to reduce energy bills by reducing energy use: charging higher tariffs as energy use rises, redesigning renewable energy schemes to minimise costs to the poor, and weatherproofing low-income rental housing.

But retail price monitoring needs to be re-thought, and resourced properly. Retailers should be required to offer customers the prices they advertise. And prices should be monitored more often, more publicly, and in more user-friendly ways. Then the price hikes might slow.