Energy regulator is getting it wrong and summer power costs will rise

Energy regulator is getting it wrong and summer power costs will rise
December 14 2016


Energy regulator is getting it wrong and summer power costs will rise

CANEGROWERS is sounding the alarm that the Australian Energy Regulator (AER) is on course to rubber stamp seriously flawed Ergon Energy network tariffs in a decision due in February 2017.

“CANEGROWERS supports cost reflective pricing.  However, Ergon’s proposed tariffs are going to penalise customers who use most of their power over the summer period, home owners, farmers and businesses,” CANEGROWERS CEO Dan Galligan said.

In October, the AER said Ergon’s summer seasonal network peak and inclining block tariffs had satisfied the Distribution Pricing Principles.

“But an investigation, commissioned by CANEGROWERS and carried out by economic consultants Sapere, has found the Ergon proposal is far from justified,” Mr Galligan said.

“Ergon’s explanation for moving to tariffs that either go up in three steps as usage increases (inclining block tariffs) or price at a premium during peak windows is that they will reduce peak demand to avoid the need for future network investment.

“But Ergon’s argument is contradicted by publicly available evidence in its own 2016 Distribution Annual Planning Report!”

The Report shows that the network congestion data used by Ergon in its tariff proposal overstates congestion by a factor of approximately 375. The scale of this pricing distortion is a whopping $1.8 billion over five years.

“In fact, Ergon’s own distribution report shows that 98% of the network has enough spare capacity to meet forecast peak demand growth for the foreseeable future,” Mr Galligan said. “There is no pressure for new network capacity.”

In fact, since the Global Financial Crisis, Ergon’s peak demand has hardly grown.

CANEGROWERS believes the AER is moving to approve seasonal peak and inclining block prices for the network while ignoring the spare capacity that is already there - effectively approving charges for non-existent future network investment.

“What Ergon is proposing, and the AER is on the verge of approving, is a regime in which electricity consumers will be unnecessarily and unfairly paying more than it costs to supply them with power at a time when they’d be needing it most, in the peak of summer,” Mr Galligan said.

“If there were a future cost saving to everyone, these tariff structures would be okay but there is not and they are far from okay.

“In the absence of those future savings, prices are actually likely to climb as the power company tries to recover the fixed revenue the AER has already allowed, while electricity use declines because it costs consumers too much,” he said.

“This is very wrong and, unless reversed when the AER makes its final determination soon, it will see both Ergon and the AER at risk of violating the national electricity rules.

“This is a clear opportunity for governments to step up, step in and make their mark on fairer electricity pricing for all Australians.”

The full Sapere report commissioned by CANEGROWERS, Errors in Australian Energy Regulator’s Draft Decision on Ergon Energy’s 2016 Tariff Structure Statement, can be found here: