Electricity price hike won't give us clean energy

02 July 2012

The Gillard government is confident that voters will soon forget the carbon tax that started on Sunday. But many people will be hit with a double whammy when they see their electricity bills.

Although little attention is paid to this factor, the tax will come on top of continuing steep rises in the cost of distributing electricity over the poles and wires that connect generators to the customers.

The government is giving low-income earners generous compensation for the impact of the tax, which Treasury estimates will lead to a 0.7 percent increase in the consumer price index compared to over 4.0 percent when the GST was introduced in 2000.

Although rising electricity bills are the main source of political friction surrounding the carbon tax, the compensation is not designed to cover the impact of the rise in distribution costs.

Nevertheless, the government’s 1.7 percent increase in the Age Pension should cover the combined cost. However, the compensation for low-income earners who are not on a pension won’t stretch that far in many cases.

The Australian Energy Regulator (AER) approves increases in distribution prices five years into the future, with variations from state to state. But the AER is not the villain in the piece. Its chair David Reeves has spoken out against the regulatory rules that lead to unnecessarily high prices. So has the chair of the Australian Competition and Consumer Council Rod Sims.

What is bizarre is that the Resources and Energy Minister Martin Ferguson could have done a lot more to modify the rules that the AER has to implement at the behest of a separate commission. Legislative change would need the cooperation of the states.

But they have a motive to back changes as they cop much of the blame for AER price rises that their own regulators are obliged to pass on. While the NSW and Queensland government can benefit from owning the distributors in their states, federal Labor governments could have hammered them politically for blocking measures to reduce price rises. In any event, the Gillard government has not fixed the problem before the carbon tax piles on top of the sharp regulatory rises.

The NSW Independent Pricing and Regulatory Tribunal (IPART) recently announced that it will increase electricity prices by average 18 percent. The main factors are a 8.4 percent rise in distribution costs and 8.9 percent for the carbon tax.

In contrast, IPART said generating costs would fall by 0.8 percent (excluding the

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Electricity price hike won't give us clean energy

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