Power companies accused of gouging in wake of carbon tax
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.
Frequently Asked Questions about this Article…
An Electricity Users Association study found wholesale electricity prices rose by more than the direct impact of the carbon price, even though there was surplus generating capacity. The group says that behaviour looks like price gouging and has called for stronger oversight of generators to restore confidence in the carbon price and electricity market.
The study cited in the article found black-coal generators recovered about 12% more than their emission costs, brown-coal generators recovered about 5% less, and gas generators recovered about 44% more. After accounting for compensation paid to brown-coal plants, the study concluded all generator types were overall better off with the carbon tax in place.
The Productivity Commission report said household bills could be cut by hundreds of dollars a year if non-essential capital spending was deferred. It also highlighted that using smart meters and better peak pricing could reduce bills by as much as $200 a year in areas with capacity constraints.
According to the report, charging more during peak demand periods and rolling out smart meters in constrained areas can shift usage away from a small number of critical peak hours. That can avoid costly investment and shave up to about $200 off annual bills in some areas by reducing the need to cover the high cost of supplying a few hours of peak demand.
The report estimated that reducing reliability (and thus deferring some network investment) in New South Wales alone could save as much as $1.1 billion in spending, with the suggestion that actual savings could be larger depending on which investments are deferred.
The Productivity Commission noted that reliability standards are sometimes prescriptive and politically influenced, meaning networks build to high reliability levels that not all customers value. The report recommends decisions should balance the cost of achieving reliability against what customers are willing to pay, rather than apply one-size-fits-all standards.
The article notes that in some states up to a quarter of an annual electricity bill covers the cost of supplying about 40 hours of critical peak demand each year. Because those costs are spread across all customers, people who don’t use much power during peaks—often lower‑income households—effectively subsidise those who do. Measures like smart meters and peak pricing could reduce these hidden cross‑subsidies.
Based on the article, investors should monitor regulatory developments (including any expansion of Australian Energy Regulator powers), policy moves on the carbon price and compensation to generators, announcements on network investment deferrals, and rollouts of smart meters and peak‑pricing schemes. These factors could influence wholesale prices, utility revenues and the pace of capital spending in the sector.
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