December 19, 2018
  • Information is Everything

Consumers Pay More than They Should for Grid Connection – Lack of Network Benchmarking

Recent analysis from energy and consumer experts show that network operators in Australia are being allowed by regulators to take twice as much money as they should for grid connections. The price for the transmission of electricity across networks makes up almost half of household electricity bill. Public owned monopolies are being used by the govrenment to earn revenues from ocnsymers with unfari policies or simple neglegence. While people ended up paying more, the governments kept collecting oversized dividends.

Grid Connection

One such example was brought out to the Australian Energy Regulator hearing regarding the government ownder transmission group PowerLink. In statistic were mind blowing indeed. With only $401 million in investment, the goverment collected a mindblowing 23 times return of $9.4 billion. Even compared to the top 50 companies in Australian Stock Exchange, these returns are skyrocketing. And all of these is despite the fact that PowerLink is the “most inefficient transmission network” in Australia. When one stops to think about it, it’s not too different from the goose that laid golden egg! Even with poor performance and low investment, staggering returns are being pocketed from consumers without them even realising.

One of the primary reasons this ended up happening is because the AER set returns based on a “theortica” level of equity investment that is four times Powerlink’s actual investment. This allowed them to take can increase amount of money fomr the consumers, while the consumers blamed the inflated economy. Ultimately, the network providers are being protected behind the regulators and given room to expand and establish without proper network benchmarkking. When the AER did try and cut down on return on equity allowances, it led to a series of assertions from the networks, including that it would make them unattractive to equity investors and significantly increase their financing risks.

PowerLink is not the only one, other network providers are also showing similar trends. Compared to the rest of the world, the network benhmark of Australia is pretty low and recent incidents demonstrated some of its Social Contract Theory. Just recently, Australia’s leading mobile netowkr operator Telstra went through network failure 4 times within the past 2 months, each time for a different cause! The ones to be impacted due to these inefficiencies are the same consumers who are paying extras. In response to the electricity prices doubling in the past decade, the national electricity regulator was given increased powers to take a more nuanced approach to setting prices. The electricity regulator responded last year, slashing the amount the NSW networks would be allowed to recoup from customers by billions of dollars over five years. This would have delivered households a $100 to $300 annual saving, depending on their network. The networks retaliated swiftly, with wild threats of massive job losses and increased bushfire risks, they lawyered up, taking the regulator to the Australian Competition Tribunal seeking to have it overturn the decision and succeeded.

The bottom line is that people will end up paying more for electricity. The tribunal’s judgment is so complex, it will likely take the regulator at least a year to come up with another price determination. We are already two years into the five year pricing period, so any increase in costs will have to be recovered by large increases in electricity prices, possibly as soon as July 1, but more likely heavily back loaded in years to come.