A new shock for power companies

What do you do when the quarterly electricity bill arrives and it gives you a sudden pain in the hip pocket?

With some 56 per cent of Australians telling opinion pollsters that their cost of living has top billing in their political concerns (just shading worrying about the quality and cost of health care), this is not an idle question.

As the Grattan Institute is pointing out -- in describing the energy markets as “a very messy story” -- electricity demand is falling, but consumer costs are still rising.

Members of the electricity supply chain, stretching from generators through network service providers to retailers, need to understand electricity consumer reactions and a changing pattern of power consumption in order to plan their own spending, their marketing and their public relations (as the pushback from consumers/voters continues to find ways to bite them).

One such is the high voltage transmission business, TransGrid, owned by the New South Wales government and managing the backbone of the state’s electricity supply via 12,600 kilometres of high voltage cables, 91 sub-stations and links to Queensland and Victoria.

Three million customers in the residential and business markets depend on TransGrid not stuffing up as it shifts some 75,000 gigawatt hours of electricity a year between generators and users.

The business is just completing a $2.6 billion capital investment program over five years. It is presently arm-wrestling the Australian Energy Regulator over what costs it can lay on customers from now to 2019 and whether it can outlay another $1.88 billion in capex in the next five years.

The watchdog will take until April next year to come to a conclusion on this and, in the interim, has pared back TransGrid’s claim for 2014-15 to save the average mass market customer a grand total of $4 a year.

Given that a typical household in the state is shelling out around $2,300 a year for power right now, this is not exactly a cause for dancing in suburban streets.

Transmission, of course, is a relatively tiny amount of the annual bill, contributing about $160 a year of the final charge – the balance coming from wholesale generation costs, green scheme burdens, distribution network charges (the big one) and retailer charges.

Wherever suppliers stand in the power chain, however, they need to know rather more about the customer mindset than in years gone by.

Back in the 1990s I rather annoyed a roomful of senior power managers -- I was then CEO of the national electricity association -- by growling that what “customer focus” meant in the industry was “we know where you live.” It irritated them the more because it was true.

Since then the ground has moved under suppliers and consumers alike, not least because the end user bills have gone up almost 60 per cent (across the country on average in inflation-adjusted terms, or “real” terms as the economists like to say).

Now lots of consultants are better fed as the denizens of the supply chain try to plumb the minds of users better known to politicians as voters, especially where the pollies also find themselves owning the networks, as in New South Wales.

Confronted by rising costs, and with at least some householders afflicted with concerns about the environmental effects of (mostly) coal-burning power stations, the state’s households have been dropping their electricity demand by around 1 per cent a year since 2007.

Even now, says TransGrid, in a commentary in its house journal for staff, exactly how and why consumer behavior is changing is not clear.

The business hired consultants Capitalis to survey 1,200 residential customers and the results make interesting reading.

For a start, more than eight out of 10 of those polled recognise they need to reduce their power demand (a big change from the flick-and-forget mentality as little as a decade ago).

Three-quarters of the respondents say they now realise they can take practical steps to reduce their consumption without getting in to spending big on these steps.

Saving money (89 per cent of them) far out-runs saving the environment (36 per cent) as their motivation but this doesn’t stop two-thirds of them saying they would like to see all power in the state provided by renewable sources like solar and wind – which shows (a) how well the green propaganda is working and (b) how little ordinary Australians understand about the cost and security factors in their power supply.

Here it is worth pointing out that 95 per cent of those polled said reliability of supply is “vital” – and not necessarily to the unconfined joy of premiers and ministers: 80 per cent of them also say it is a government’s responsibility to make sure that electricity supply matches demand.

The poll shows that residential consumers aren’t all that enamoured of spending big personally on meeting their needs.

Just 3 per cent of respondents had invested in double glazing windows (more to do with noise management than savings, I’d reckon), 4 per cent insulated pipes to lower heat loss, 8 per cent opted for solar water heating, 11 per cent for using their pool pump less, 14 per cent for installing solar PV systems and 24 per cent for wall and roof insulation -- versus, for example, 75 per cent who now hang washing on the line instead of using their dryers.

How much further Mr and Ms Average want to go to cut their power bills remains to be seen.

This and the likely decade-end level of manufacturing on the east coast, the largest consumption segment at present, are preying on supplier minds.