The Institute for Energy Economics and Financial Analysis (IEEFA) has claimed energy consumers overpaid network providers in the Eastern States by $10 billion.
The claims were made in IEEFA’s recent report titled Regulated Electricity Network Prices Are Higher than Necessary, which found Network Service Providers (NSPs) profits between 2014 to 2021 to be 61 per cent higher than expected.
These ‘supernormal’ profits – profits that exceed the returns needed for financial viability – have hindered Australia’s transition to renewable energy according to report authors.
The report found supernormal profits occurred because the current regulatory system, which is managed by energy market bodies, consistently overestimated the actual costs that network businesses would require to build, operate and maintain the network.
Of the 18 NSPs analysed in the report, 14 were found to have extracted profit above IEEFA’s expected profit multiple range, indicating that consumers were being overcharged for services.
“Poles and wires’ distribution and transmission network service businesses, including the likes of United Energy, Endeavour, SA Power Networks and AusNet, have consistently been charging electricity consumers too much – around eleven per cent more than total costs,” an IEEFA spokesperson said.
IEEFA said the alleged practice had imposed an unnecessary additional average cost of 6.8 per cent into people’s electricity bills in 2020, or between $800 to $1200 per energy customer over the eight-year period, depending on the state they live in, with no additional reliability benefits.
The report’s author, Simon Orme, said the findings must be responded to with regulatory change.
“People’s electricity bills are forecast to increase even further over the next six to 18 months as high coal and gas prices globally impact Australia’s domestic prices,” Mr Orme said.
“Australia’s energy customers have been spinning golden silk for network providers for nearly a decade. They can’t be expected to fund super profits any longer. The extra burden must be removed.
“The inefficiencies from excessive network prices, and wealth transfers created by persistent sector-wide supernormal profits, are also delaying decarbonisation of the electricity system.
“The $10 billion in super profits extracted by electricity networks over 2014-2021 is approaching the capital cost of AEMO-identified regulated transmission projects necessary to support the closure of most coal-fired power generation.”
The Australian Energy Market Operator’s 2022 Integrated System Plan ‘Step Change Scenario’ costs the new regulated transmission investment necessary for the energy transition at $12.7 billion in its optimal development path.
Orme says energy consumers in the national electricity market have paid around $1.2 billion more than necessary each year over the last eight years to have a stable electricity supply.
“The Australian Energy Regulator is responsible for making sure networks charge consumers only what is required to cover the costs of investing in, building, maintaining and operating the networks, plus a reasonable profit to ensure compensation for investors,” Mr Orme said.
“That network providers in Queensland, New South Wales, Victoria, South Australia and Tasmania have gained super profits by persistently charging too much, resulting in overall retail electricity prices being higher than necessary, is a fact Energy Ministers championing lower electricity prices may have been unaware of.
“Now that they are aware, the Federal Government should establish an independent commission of inquiry into the economic regulation of networks, working together with participating NEM jurisdictions.
IEEFA’s Regulated Electricity Network Prices Are Higher than Necessary — An Assessment of the Economic Regulation of Australia’s Electricity Networks report is available in full here.
