TiP

It’s been another noisy week in the energy supply arena.

It’s been a busy month, in fact, as the new issue of the Coolibah newsletter (which is now available on this website) illustrates.

The stand-out event this week because it affects the most people, is the announcement by the New South Wales Independent Pricing & Regulatory Tribunal of the power prices that will be imposed on roughly half of the State’s residential and small business customers from 1 July.

(It’s half because the balance of these customers have taken out supply contracts with energy retailers – but it needs to be borne in mind that those with market-based prices are also influenced by IPART decisions because the retailers usually increase their rates in line with the regulator’s decisions.)

IPART chairman Peter Boxall makes the point that, with this increase, regulated prices will have risen 70 per cent (in inflation-adjusted terms) in the past five years and network charges, which are set for the east coast businesses by the Australian Energy Regulator, will have gone up 90 per cent (real) in the same period.

The ensuing political debate, not surprisingly, has been about the impact on prices of the federal carbon charge, which also comes in to play on 1 July.

The Coalition at State and federal levels and the Gillard government have traded blows over the role of the carbon price, with Greg Combet pointing to the compensation package included in the legislation.

(Before I go any further, let me point you towards something Bruce Macfarlane of Exigency sent me this week.

(The poster is entitled “Grounds for alarm” – which is a terrible pun – and presents a decade-long comparison of national average residential electricity costs per day and the price of a good cup of coffee.

(The comparison, which can be found on Exigency’s website at www.exigency.com.au, reveals that in 2003 the daily household cost of power averaged $3.01 versus $2.49 for a cappuccino.

(Today, Macfarlane says, the cost is $5.55 versus $3.35.

(The coffee cost has gone up 35 per cent and the power price has risen 85 per cent.

(Of course, every network engineer in the country reading this is now spluttering in to his or her beverage of choice that this demonstrates just what a good deal the power service is when you consider what lies behind the delivery of the coffee and of the electrons.)

Coming back to the IPART announcement, somewhat lost to view in the initial media coverage has been the unhappiness of small manufacturing businesses in NSW.

They are already struggling because of the high value of our dollar and they will not get any of the compensation the Gillard government will provide for the carbon price.

You would have to be a political mug to ignore the ripple effect of this problem.

The IPART report is quite clear about how the 16.4 per cent price for average NSW residential customers is made up – the carbon charge will contribute nine per cent while network charges will add 8.4 per cent and retail costs and margins contribute 1.2 per cent.

The blow is less than what these add up to because the year’s softer wholesale energy market means a 2.3 per cent fall in power generation costs has been factored in.

Leaving aside rural and regional customers, who pay more because it costs more to transport electricity across country to them, IPART estimates that households in the heavily-populated area from Wollongong and the Southern Highlands, including urban Sydney and stretching up to the Central Coast and the Hunter Valley (including Newcastle) will face average power bills between $1,946 and $2,101.

The biggest contributor to these costs is network charges, which in 2012-13 will account for $860 to $1,042 annually, followed by wholesale energy ($526 to $565), retail costs and margins ($211 to $227), the federal carbon price ($168) and other “green costs” (including the renewable energy target) of $139 to $142.

As IPART notes, the actual impact of the price increase depends on where you live and how much electricity you use.

The regulator says bills will be $400 higher for about 20 per cent of households.

Median spending on electricity in Sydney households, which the regulator has been modelling, is now about four per cent of disposable income – but it is likely to be almost eight per cent for median households in the lowest income category, of whom there are said to be about 900,000.

IPART also notes that its analysis indicates that the federal carbon package will compensate “the large majority” of low-income households for its impact on their bills.

All the stakeholders have views about what should or shouldn’t happen to network capex and opex regulation.

IPART takes every opportunity to press its opinions (similar to those of the AER) in favour of rule change.

The Australian Energy Market Commission will make a call on the rules before the year’s end and the AER will then have its hands full making determinations about network outlays from 2014 onwards.

The AER’s current set of determinations will still be impacting on consumer costs on the east coast in 2014-15, something that tends to be overlooked in the public fusses about the issue.

What also tends to be lost to view in all the kerfuffle is that decisions by the AER and its State-based predecessors have authorised $55.3 billion to east coast network capital expenditure between 2002-03 and 2011-12, of which $34.6 billion occurred in the latter five years.

If you were to average this out and cut it by a quarter for the five years from 2014-15, you would still be looking at nearly $20 billion in outlays for the next determinations.

(Remember that the aged assets are getting older, there will be more households to service, the economy may even start improving, pushing up commercial and industrial demand, and the community will still be buying more air-conditioners. That leaves lots of room for taking an axe to network capex and opex doesn’t it?)

Factor in higher wholesale prices, a slightly higher RET cost, higher retail costs and margins and a higher carbon price (if the existing scheme survives the political process) plus the costs of rolling out smart meters across NSW (which IPART advocates) and tell me how this translates in to a lessening of the “power pain” problem this decade?

Perhaps the real grounds for alarm are that the body politics is all at sea in dealing with power prices – and has been for more than three years.

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