TiP

Before I launch in to this tale of woe, some good news (at least from my perspective).

My son Kay, whose IT expertise is the reason this stuff sees the light of day, reports that the Coolibah website recorded 13,197 unique page views in the merry month of March (well not for Anna Bligh, but you can’t have everything).

This is almost three times the Coolibah readership in March 2011 and nearly five times what it was in March 2010.

Thank you, one and all, for your interest.

Now to the gory stuff.

Western Australia’s Economic Regulation Authority has recommended that power bills from Synergy, the WA government-owned retail business, should rise 23.1 per cent to achieve cost-reflective pricing and take in to account Ms J.Gillard’s carbon tax.

This follows a 57 per cent increase in tariffs since the Coalition came to office in the West and found that its Labor predecessor had left it the most poisoned of chalices with respect to electricity supply.

Under WA Labor over a decade, the only time the power bills went up was to include John Howard’s GST.

As a result, by the time Colin Barnett’s team took office, taxpayers, who own most of the State power system, were faced with a billion dollar debt on its way to about $3 billion by mid-decade.

Even after the price rises to date and without the increases proposed, the State government is confronted with subsidy of $1,064 million between 2011-12 and 2014-15

The ERA chairman Lyndon Rowe sums it up like this: “At the moment there is (still) a significant subsidy. I think it is in the order of $350 million to $400 million that the government pays Synergy because we don’t have cost-reflective tariffs and that’s paid for by the taxpayers.”

Rowe says an increase of level the regulator proposes will undoubtedly be unpopular but “it is important that customers pay the full cost of generating, distributing and retailing power.”

This is certainly true in a State where, according to the Energy Supply Association yearbook, electric energy passed through the SWIS will rise from about 19,000 gigawatt hours annually now to 24,630 GWh in 2019-20 – and peak demand will require almost 6,000 MW capacity compared with 4,400 MW now.

The pressure is the greater because the regulator is intent on slashing the capex bids from Western Power, the government-owned transmission and distribution business, for the next tranche of investment.

What the Barnett government will do about the next round of power prices is another matter.

Its current plan is to increase them by five per cent in the new financial year rather than the recommended 23.1 per cent, which will shove bills for householders up $353 annually for the typical home.

Barnett has publicly acknowledged that keeping on with the power tariff increases could cost him the 2013 State election – although the opinion polls tend to suggest that, overall, the Coalition is head and shoulders ahead of Labor.

The ERA says that 12.2 per cent of the proposed increase will cover the difference remaining between what it costs to produce and deliver electricity and how much householders pay today.

It claims that another 8.4 per cent will be needed if the full cost of the federal carbon price is passed on (which it should be because the Gillard government is handing out compensation for the impact from 1 July).

Barnett has said he will have the carbon burden passed through, a politically sensible approach.

SWIS customers – those served by the south-west integrated system which covers Kalgoorlie to Perth/Fremantle and south to Albany – also hand over a subsidy for customers in the north-west and south-east of the State.

It is currently $200 and the ERA says that, unless the levy is scrapped and the government meets its cost out of consolidated revenue, SWIS power prices should rise $103 a year for the grant to reflect the true cost of supply.

The State’s economic watchdog is clear about the price consumers need to pay for the long freeze on tariffs under Labor: full catch-up for the 10-year populist trick equates to another 5.1 per cent rise in prices, it says.

Of course, there are always efficiences to be found along the power supply chain.

For example,the ERA says that Synergy can reduce its retail charges by $15 per household per year if it is more efficient.

The Energy Supply Association has tackled the cost-reflective issue in its submission to Martin Ferguson’s national energy white paper process.

It acknowledges that energy prices rises, increasing faster than inflation in WA, are unpopular.

“There is rising public discontent,” the association notes.

The answer, says ESAA, is to separate the price of energy and the government support for customers suffering hardship.

At present, it points out, all WA residential customers are still being subsidised regardless of their needs.

It has taken up a hard-nosed point being made by Barnett: only 2.4 per cent of the average household expenditure in the West is on electricity and gas, says ESAA.

This is a smaller share of other essential items like food and accommodation – although it wasn’t wise, I suggest, to put “essential” in the submission in inverted commas; food and accomodation are about as essential as it gets.

The power costs are also less than the Sandgropers are paying on average for recreation, booze and tobacco.

Looking nationally, ESAA makes the point that, although energy costs play a small part in most household budgets, price rises and changes to tariff structures do have a substantial impact on vulnerable households.

This, it says, is not a reason to avoid carrying out reform – rather, it highlights the need for governments to provide support to the genuinely needy and to clearly identify it in their annual budgets.

The cost of living issue is seen now as a crucial factor in State and federal politics – every petshop galah in the media commentariat has discovered it since the crushing Labor defeat in Queensland last month although it seemingly escaped many of them before the poll, given the stuff they wrote or put to air.

However, the facts of power supply life really need some serious attention by policymakers rather than the handwringing, “we feel your pain” spin that is today’s common currency.

The ESAA argument that cost-reflective energy tariffs are a “fundamental building block” of an efficient market is exactly right.

We do need price-based solution to runaway peak demand, for example, and it has an an important role to play in changing consumer behaviour overall.

Getting politicians to bite the bullet on this topic should be higher on the national agenda than it is – and the media, especially the tabloid/populist newspapers, radio and commercial television, are doing next door to nothing to help encourage a new sense of realism about power prices.

Editors and commentators are forever calling on politicians to be more responsible.

Well, here is an area where they can lead the way.

Just getting the facts straight would help.

I groaned when I read a Sydney tabloid story last weekend asserting that the city’s average residential power bill is $2,484, contrasting this with Adelaide, where, the reporter claimed, average bills were only $1,600.

“A startling difference,” she claimed.

Well, on the Ausgrid report that I recently covered here and in “Business Spectator,” the average cost for a “medium” use electricity-only home in Sydney is $1,860 a year compared with $1,961 in Melbourne.

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