From the July 1 many Australian consumers will be facing an average increase in their electricity bills of up to 18%. These large increases are not being caused by a single factor, but rather by a range of issues which include rising network costs and the introduction of the carbon price.
While much of the attention has been upon the carbon price, which is responsible for up to half of the increase but is balanced by compensation, consumer groups are calling for action to change the regulatory framework cost increases such as network costs are justified. They also want improved assistance to low-income and disadvantaged consumers.
The cost of access to electricity and gas is a cause of significant strain for many consumers. The Western Australian Council of Social Services states that ‘for low income and disadvantaged Western Australians the cost of accessing essential services such as electricity consumes a disproportionately high percentage of household income’ .
The Queensland Council of Social Services was also concerned about rising prices, saying in a recent submission to the Queensland Competition Authority, that the outcomes of an on-going pricing and tariff review ‘are of great significance to Queensland consumers, particularly in view of the rising energy costs experienced by households in the previous five years’.
The Public Interest Advocacy Centre has also raised concerns about increasing electricity prices, stating that ‘consumers will struggle to absorb these price rises’.
Despite these ongoing concerns NSW’s independent regulator, the Independent Pricing and Regulatory Tribunal (IPART), recently announced that consumers in NSW would be facing an 18% increase in their electricity bills from July 1 2012. This will be matched by an increase in gas prices of up to 15%.
IPART’s final report on the 18% July 1 increase stated that the drivers of the average cost increase were: the Carbon Price (8.9%), the network (8.4%), retail (1.2%), and other Green Schemes (0.3%), whilst the cost of generation declined (0.8%).
This increase in NSW will be matched by an 18% rise in energy costs in South Australia.
The Essential Services Commission of South Australia stated that this increase was made up from increased feed-in tariff costs (6.9%), the carbon price (4.6%), increased network costs (4%), and changes in retail charges and CPI adjustments (2.6%).
In comparison to the increases in NSW and SA the Queensland Government has taken steps to minimise the impact of increasing electricity prices on consumers within their state by freezing price increases for 12 months from July 1.
The Hon. Mark McArdle, the Queensland Minister for Energy and Water Supply, announced that the government would freeze Tariff 11 (the standard electricity tariff) increases, and that the only cost rise received would be that caused by the introduction of the carbon price.
Without this freeze Mr. McArdle said that draft figures from the Queensland Competition Authority showed that many consumers would be facing a 20% increase in 2012-13.
In each of the three states the carbon price has been listed as a major driver behind the 2012 price increase. In both SA and NSW, however, rising network costs, which match the carbon price in its contribution, have also been a main forces behind large price rises in recent years and are likely to be so in the future.
The chairman of IPART, Dr. Peter Boxall, said that the organisation ‘is concerned about ongoing cost increases and has outlined recommendations aimed at improving the future affordability of electricity’.
These recommendations include possible changes to the National Electricity Rules and National Electricity Law that could ‘reduce pressure on prices and make sure that expenditure on the electricity network is efficient’.
These recommendations would see the NER changed to remove the bias towards higher network prices and inefficient outcomes, minimising the potential for future network cost increases. Along with this they would see the NEL review process become fairer and more open for consumers.
These recommendations are in line with the recommendations made by the Consumer Utilities Advocacy Centre in a submission to an on-going review of the national electricity and gas laws by the Australian Energy Market Commission.
CFA member CHOICE has also called for ‘reforms to Australia’s electricity market to break the cycle of rising infrastructure costs, including measures to cut peak electricity demand and greater scrutiny of costs before they are passed through to household bills’.
Along with the progress which is being made in terms of the legislative framework and regulatory review process, PIAC says that ‘ an urgent and comprehensive review of assistance measures is now needed’ for a review is needed to ‘to identify the best ways to assist consumers, including those rural and regional households who face the highest electricity prices’.
Many Australian consumers are facing significant increases in their gas and electricity bills on July 1. Whilst regulatory bodies have stated that the carbon price is a large contributor to the increase in 2012, the bias in the laws governing the networks and the inefficiencies in network expansion and delivery have also be sighted as equally large contributors to the increase electricity prices, an impact that is unlikely to be limited to 2012 prices.