Power companies accused of gouging in wake of carbon tax

Power utilities have been accused of price gouging after the introduction of a carbon tax, at the same time as a government report says household electricity bills could be cut by hundreds of dollars a year if non-essential capital spending was deferred.

The Productivity Commission report also put its weight behind the rollout of smart meters that could save significantly more.

A study by the Electricity Users Association, released last week, says power generators have raised wholesale prices by more than the impact of the carbon price, even with a surplus of generating capacity.

The group said the Australian Energy Regulator should have the power to oversee the generators, since confidence in the carbon price "has been undermined by the national electricity market's inability to deliver lower emissions at the lowest possible cost to users".

This study found prices paid by power generators using black coal allowed them to recover 12 per cent more than the emission costs they were required to bear; brown-coal generators 5 per cent less; and gas generators 44 per cent more..

Taking into account compensation paid to brown-coal generators, the study found that all electricity generators are better off with the introduction of the carbon tax.

Separately, a report by the Productivity Commission found that reducing the reliability of the power network in NSW alone could save as much as $1.1 billion of spending, which could be deferred, although "the actual savings are likely to be larger".

Similarly, as much as $200 could be cut from the annual electricity bill by charging more during peak demand periods and introducing smart meters in areas with capacity constraints.

"Reliability is critical to electricity networks, but some consumers are forced to pay for higher reliability than they value," the report said. "Reliability decisions should be based on trading off the costs of achieving them against what customers are willing to pay, rather than by prescriptive (sometimes politically influenced) standards."

In some states, such as NSW, as much as a quarter of the annual electricity bill is needed to cover the cost of supplying just 40 hours of very high, or "critical peak" electricity demand each year, which could be avoided by removing pricing controls, using smart meters and other measures.

"This would defer costly investment, ease price pressures on customers, and reduce the large hidden cross subsidies effectively paid by (often lower-income) people who do not heavily use power in peak times, to those who do," the Productivity Commission report said.