NSW utilities win major battle in Australian electricity price war

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Australian electricity networks have won a major battle in their campaign to recoup the costs of investment in grid infrastructure, after the Australian Energy Regulator decision to cut prices charged to consumer energy bills in NSW was

In 2015, the AER ruled that electricity network operators in NSW had overestimated their required expenditure, and ordered them to charge consumers less, resulting in a drop in energy bills of between $100 and $300 a year.

In a decision announced on Friday, the Australian Competition Tribunal directed the AER to reconsider its 2015 determinations, siding with the claim from Endeavour Energy, Essential Energy and Ausgrid that their costs were more than $5 billion higher than the regulator had estimated.

The ruling – which has been referred back to the regulator to nut out the details – is a blow to NSW consumers, who will see a sharp jump in household electricity bills.

“Network charges make up around 50 per cent of household electricity bills,” said Edward Santow, the CEO of the Public Interest Advocacy Centre, which represented consumers in the case.

“This decision will see prices go up but we are months away from knowing by how much,” he said.

“When the appeals process is finally over, there’s a significant risk of bill shock as electricity providers play catch up on how much they can recoup from NSW consumers.”

But the ruling has implications Australia-wide, too, with other utilities sure to be watching the case in anticipation of future battles over so-called “network gold-plating,” and who should pay for it now that energy efficiency, solar – and soon battery storage – are reducing demand, and offering alternatives to the main grid.

As PIAC put it in a statement on Friday, the Tribunal’s approach meant it had accepted the network businesses’ position that they should be allowed to collect even more money from consumers, to pay for the inefficiencies they had worked into their businesses.

“The law was changed in 2013 to give the regulator new powers to bring fairness to the electricity price-setting process, following price increases of 94 per cent over five years,” said Santow.

“The Tribunal’s decision makes it harder to bring about a fair result.”

But while the networks appear to have chalked up a win, it might only be a short-term gain, as consumers look to increasingly cheap and accessible technology – like solar and battery storage – to rein in their power costs. They might even quit the grid altogether.

“Government, consumers, and the regulator have worked incredibly hard to make the energy regulation system work better for ordinary consumers, but network businesses have fought tooth and nail to reverse that progress,” said Santow.

“This decision will put pressure on all NSW consumers. It will inevitably lead to further hardship and disconnections, particularly in disadvantaged and vulnerable communities.”

The network lobby, however, said it was a “better outcome” for consumers.

The AER said the Tribunal found it was correct to conclude that the electricity distribution businesses in NSW and the ACT were not operating as efficiently as other networks, so consumers were paying more than necessary for safe and reliable electricity and gas.

“The AER’s aim continues to be setting network revenues in the long term interests of consumers as required under the National Electricity Law. With that aim in mind, we are now looking at the Tribunal’s decisions in these large and complex revenue determinations to identify what happens next,” chairwoman Paula Conboy said.

“We are considering the implications the Tribunal’s decisions will have both for the revenue that the businesses will be allowed to recover from consumers in NSW and ACT, and the prices those consumers will have to pay, as well as our processes for future determinations.”

  • BsrKr11

    How un-surprising is this? When the body governing the body governing has a financial stake in doing things a certain way…. things are done in a certain way

  • Solar Sparky

    So…….this will almost certainly lead to an increase in fixed costs as the electricity retailers and distributors hope that consumers are fixated on the $/kWh consumption portion of their bill…….sadly for them, savvy designers / installers will be pointing out the possiblities of a) energy efficiency strategies both technical and lifestyle, b) PV with storage, c) the possibility of taking almost any detached house off of the grid as fixed and consumption charges continue to rise while PV generation and storage costs fall.

    To (badly) misquote from Star Wars……”The more you tighten your fist, the more systems will slip through your fingers!”

    I know that I keep getting enquiries from people who’ve had enough. Combine increased fixed costs with the end of the NSW Gross FiT at the end of the year and there are going to be 1000’s of people defecting.

    • JeffJL

      For a Star Wars quote (even if badly remembered) 10 points.

  • Maurice Oldis

    We have the dearest electricity prices in the world (U.S 6c/kw/hr) absurd network charges added on to that and now the foolish networks choose to shoot themselves in the foot

    • solarguy

      The ACT has to be corrupt allowing this after 100% increases. Consider this, there are 2.9 million households in NSW and they still haven’t got enough out of us! Expect Mike Baird to give them the power to impose fines for leaving the grid, it’s on the cards.

    • Dispassionate

      Why do people quote ridiculous
      numbers like U.S 6c/kWh, I just did a search and nowhere could I find an
      average for the US anywhere near 6c.

      In my opinion this is the problem with the whole solar PV/grid/gold plating etc argument, everyone exaggerates their position rather than trying to have a rational realistic debate as to what would be the best way forward. If everyone quoted and discussed facts that were reasonably provable and robust then a clear path could probably be seen, but too many on both sides mess the path up with piles of BS.

  • David

    I just cant get over this. Disruptive technology is coming at them thick and fast yet they wage a war to essentially retain the right to accelerate the death spiral. I wonder what the legal budget is? Does anyone see the irony in the name “essential energy”?

  • phred01

    As they say the writing is clearly on the wall Utilities win round 1.

    With RE maturing going off grid will become more & more attractive as the break even point is approached

  • trackdaze

    It might be a hollow win. The tribunal directed aer to reconsider the determination.

    If I was the aer that reconsideration ought to be full and thorough.

  • Math Geurts

    “But while the networks appear to have chalked up a win, it might only be a short-term gain, as consumers look to increasingly cheap and accessible technology – like solar and battery storage – to rein in their power costs. They might even quit the grid altogether.”‘

    Unsatisfied consumer? Leave the grid. Today. Where do you wait for?

    • RobMorganAU

      Every consumer who does, will increase the costs to those who remain just that little bit more. I wouldnt be in such a hurry to urge him and others to move on if I were you.

      At least some of the energy companies are starting to think in terms of grid-connected distributed generation. That’s a constructive approach.

      • Math Geurts

        For those who are unsatisfied: just care about the costs for your batteries. The tax payer will pay for the losses of the public grid owners.

        • RobMorganAU

          Matt, in NSW we’re in the final stages of selling off the grid. It’ll be run like any other privately owned utility – at a profit. Personally, I’m quite concerned at the prospect of shared utility economics going south if battery + solar does start to kick-in – probably in around 5+ years. What we’re hearing about now is just a mix of pilots and trials.

          As an aside, I’ve already done one off-grid installation for a relative’s farmhouse, using a good-sized bank of ex-commercial deep cycle industrial batteries. It was surprisingly normal, if you overlook the limitation of not being able to do the ironing and vacuuming at the same time. Won’t be an issue with the capacity of current offerings.

          • Math Geurts

            Well, I understand that the value of the grid is not so great anymore. It will be a kind of write-off. After that write-off the economically rational tariff for “using” the privately owned grid will be low for everybody, wether or not she owns solar panels and batteries. You mainly pay a fixed price for the “security” of staying connected or leave and create your own solution for the remaining 5%.

  • Math Geurts

    To the “Public Interest Advocacy Centre”: as the grid is publicly owned, in case some consumers don’t want to pay anymore for (over-)investments in the past, somehow all tax-payers will have to pay for those.

  • Chris Fraser

    Network Operators = public relations geniuses.

  • Waz

    The distributors won because the AER determination was flawed. Farms need power, and there needs to be people to fix it when it fails. Otherwise, no milk for my coffee. Also, the discussions about ‘less demand thanks to renewables’ doesn’t really apply to rural distributors. Load isn’t the issue. Poles still rot and birds still fly into wires whether those connected are importing or exporting kW.