Newman’s electricity tax by stealth

Increasing fixed charges are biting hard in Queensland and input comparisons with other states suggests consumers are right to be sceptical.

There is a great deal to be concerned about regarding the regulator’s hike in Queensland electricity prices and the associated political debate. Here's the headline:

'Electricity prices to go up 5% even if that great-big, horrible, job-destroying carbon tax goes.'

It kind of puts the last four years of childish debate into context, doesn’t it?

In spite of all the focus on the carbon tax, as some kind of whirlwind of horror, even with it gone householders will see a bill rise of 5 per cent this year on top of a near-doubling over the preceding years.

Consumers would be right to ask, "what gives, we’ve got rid of the carbon tax and my bill is still really high?" (Unless, of course, you installed solar panels.)

And indeed, there is something not right with Queensland electricity prices.

What is particularly concerning is the regulator – the Queensland Competition Authority – has chosen to pass on these price rises via increasing fixed charges, which consumers can do nothing to avoid.

Below is the regulator’s breakdown of the causes of the rise in household bills for next financial year if the carbon trading scheme were not to be repealed and the fixed carbon price remained.

Graph for Newman’s electricity tax by stealth

Source: Queensland Competition Authority

Now let’s consider the biggest component of the rise – the $68 associated with generation.

Someone needs to ask, why on earth did Queensland pay much higher wholesale electricity prices than New South Wales and Victoria last year, given it has a huge overhang of excess generation capacity and its generators are very efficient and low-cost? 

Over 2011-12, the wholesale electricity price in Queensland was $29.07, in NSW it was $29.67 and in Victoria it was $27.28. Then the $23 carbon price came in.

NSW prices rose by $25.43; a bit higher than the grid intensity of about 1 tonne of CO2 per MWh.

Victoria's rose by $30.16, reflecting a higher grid emissions intensity of about 1.3tCO2.

But Queensland rose by $39, even though its coal generators have lower emission intensity than NSW’s and electricity demand was flat.

Maybe someone needs to ask the Newman government why it thought it was in consumers’ interests (rather than Queensland state treasury's interest) to consolidate the three power generation companies into just two, making it easier to exercise market power and exploit a peculiar transmission constraint in the state?

Network charges are also up $50 on top of several large rises in previous years, something Climate Spectator has explained a million times as a serious conflict of interest issue for the Queensland government, as owner and regulator of networks. The solar feed-in tariff adds another $57 and, strangely, retail costs continue an inexorable rise. One would think that the internet, outsourcing to India and better computing technology should be driving improvements in productivity in retailing, but the regulator doesn’t seem to have uncovered such benefits.

Now, the table below shows the troubling and inefficient way these price rises will be passed through to consumers. The fixed daily service charge, which is entirely independent of your electricity demand, will rise by 66.1 per cent, irrespective of what happens with the carbon tax. This will impose an extra cost of $121 per annum for every customer. Unless households completely disconnect from the grid there is absolutely nothing they can do to reduce this charge. Meanwhile, the usage charge, which is per unit of electricity you consume, will go up by just 4.9 per cent.

Graph for Newman’s electricity tax by stealth

According to the regulator they are increasing fixed charges because:

...customers with higher consumption are subsidising customers with lower consumption. We are gradually rebalancing the two charges to ensure that customers pay their actual costs. Rebalancing reduces the subsidy received by lower-use customers.”

Yet the thing is that more than a third of the increase in this year’s costs is a function of power generation – this is entirely a function of how much power someone consumes.

Also, this idea that lower-consumption households are being subsidised by higher-consumption households is not accurate for a large number of consumers, and is particularly unfair to low-income households. Low consumption households are probably less likely to have an air-conditioner and also have fewer other appliances which drive peak demand and, therefore, the cost of network infrastructure (the biggest electricity cost component).

This change in rate structure represents extremely poor economics. If the government were genuinely serious about removing cross-subsidies it would announce a move to roll out smart metering and/or charges based on a household’s peak demand. Yet it won’t.

Instead, the government has chosen to adjust tariffs in a manner which reduces incentives to use energy more efficiently while doing absolutely nothing to discourage demand during times when network capacity is constrained. If anything, it encourages increases in peak demand (not to mention the fact that it will lead to a rise in greenhouse gas emissions and hit the poor the hardest).

Given the Queensland Treasury is a major beneficiary of rising electricity demand, perhaps this is exactly what the government wants.... a tax by stealth.