By Jonathan Pavetto, Consultant
Electricity prices have been too high for too long. Finally, consumers get a chance to act on reducing prices!
A relatively unknown regulatory process is about to kick-off and it will determine if electricity prices will increase or decrease over the next five years. This process is the Australian Energy Regulator (AER)’s Regulatory Reset of Ergon and Energex’s allowed revenues.
The Regulatory Reset determines how much money network companies can collect from consumers each year, for the next five years – the higher the revenues for networks, the higher the prices for consumers.
What’s the big picture?
The electricity supply chain is complex. Electricity is generated in a competitive market, transported along networks, “the poles and wires”, that are regulated as natural monopolies and is sold to consumers by retailers, in a competitive market.
The cost of the network is the largest component of electricity prices. If prices are to be slashed, the major reductions must come from network charges – the “poles and wires” involved in delivering electricity from power station to power point.
How have network prices increased so much?
Every five years, the AER determines how much the networks can charge electricity retailers for access to the network. Networks are only allowed to charge retailers up to a pre-determined “Revenue Cap”. All network charges approved by the AER are passed on directly to consumers.
At the last Regulatory Reset in 2010, the AER approved large increases in revenues in Ergon and Energex’s regulatory proposals. These increases were based on overly optimistic demand and energy forecasts, resulting in a generous capital investment program.
These errors have further increased prices as consumers are now paying for parts of the network, which are neither used nor useful.
Without a counter argument from consumers, the AER had no grounds to reduce allowances sought by Ergon and Energex in their regulatory proposals. But if consumers were engaging with the AER, the last five years of record price increases may have been avoided.
How can we influence prices?
Without a united push from all consumers and consumer groups, the AER will approve another five years of network price rises for consumers.
SAS Group is looking to establish a coalition of energy users to undertake research to make an in-depth submission on behalf of all energy consumers in Queensland.
For more information about the AER Regulatory Reset visit Australian Energy Regulator.
The SAS Group can help
The SAS Group is a corporate advisory firm that provides services in government relations, policy, public affairs, media and communications. The SAS Group works with clients from all key industry sectors including energy and resources, agriculture, health, manufacturing, construction, professional services, environment and with industry associations.
Our lead consultant on the energy sector, Jonathan Pavetto, is an expert in consumer advocacy in the electricity sector. Jonathan was the only consumer representative from Queensland to work with the AER on their Better Regulation process, designed at improving the regulation of network service providers. Prior to joining the SAS Group, Jonathan work for CANEGROWERS and advocated for electricity market reform and worked on tariff design for irrigators. Jonathan has been engaging with Ergon and Energex on their Regulatory Reset proposals throughout 2014 and is well acquainted with the key influencers and decision makers in the networks companies, the AER and Federal and State governments.