Peak out of sight on an energy price hike

New South Wales' decision to hike gas and electricity prices will pain business, but uncertainty due to the regulator's refusal to set prices past 2014 will hurt most.

Here comes the winter of discontent for three million households and smaller businesses in New South Wales as they are told their electricity and gas prices are going up from July 1.

The state’s Independent Pricing & Regulatory Tribunal, in a draft determination that will be finalised next month, is pushing power bills 3 per cent higher for 2013-14, while gas bills will rise by an average of 8.6 per cent.

IPART was charged with setting prices from mid-2013 to mid-2016, but it has declined to do this, opting to focus on the next financial year, a move that will upset the state’s small and medium businesses, who want more certainty.

The New South Wales Business Chamber said that 49 per cent of its members were finding that energy prices were having a significant impact on their businesses before the new round of increases – and not knowing what is coming in higher bills doesn’t help.

However, the regulator sees too much uncertainty in the energy markets to encourage it to do more than the bare minimum of price-setting.

It does hold out the hope to electricity customers that 2014-15 will see a still lower price rise and there will possibly be a reduction in 2015.

In the political battleground area of Western Sydney, IPART’s proposals will see power bills rise by $57 a year for households and $79 for 2013-14 for small businesses.

For gas customers in Sydney, the proposed increases will be $76 per year to residential bills and $356 for small businesses.

However, one factor working for the state’s families is that they have reduced their use of electricity over the past two years – households averaging 7,000 kilowatt hours a year then are now down to 6,500 kWh.

The tribunal’s decisions relate to customers who have not signed a contract with a retailer for their electricity or gas supply.

While customers on contracts are not affected directly by the decisions, their market-based prices will be influenced by the changes.

The next step in the process is a public hearing in Sydney on May 7 and stakeholders have until 20 May to send in written submissions.

The federal and state governments will breathe easier as the five grim years of double-digit power bill increases come to an end, but this still leaves the average cost of electricity in the suburbs double what it was in 2007.

Average household bills ran to $1,100 a year in 2007-08 and now are about $2,230, with network costs accounting for $654 of the rise and the carbon tax and other green schemes another $243.

IPART chairman Peter Boxall attributes the new, lower power price rises to much-reduced pressure on network charges (after four years in which some $15 billion was spent upgrading infrastructure) and to green scheme costs staying relatively stable.

The big driver of the latest round of electricity price rises is higher retailer costs for billing and marketing.

The regulator’s advice to householders is to consider moving to a market contract.

While switching rates in New South Wales are much lower than in Victoria’s deregulated market, 53 per cent of the state’s residential customers are now under contract and 50,000 a month have been making the move since May last year.