The great Australian electricity rip-off

Right, now I’m really pee'd off.

Although I’ve spent more than two decades in the solar and energy field, in the last two years, as solar has grown and we have become an intrinsic and material part of Australia’s energy mix, I have come to realise something fundamental.

The Australian public is being duped and constantly lied to on a monumental scale when it come to electricity.

Now, I am a fundamentally trusting person; it’s the way I was brought up. I’m not a conspiracy theorist. I always give people, governments and corporations the benefit of the doubt.

However, the more I read, research and understand about the way our electricity system operates the more alarmed I become. I admit, I am not an expert in the complex and ever changing world of electricity regulation, but a lot of what is happening in the industry is not rocket science. Events of the last few weeks have simply brought it all home for me.

Lets look at a few examples.

The RET

The facts on what the Renewable Energy Target does and doesn’t cost are absolutely, 100 per cent clear, ironically thanks to a government body, the Australian Energy Market Commission. It’s the single smallest component of electricity bills (bar one) and is already declining in proportional terms.

And yet, from the prime minister down to the subtle messages passed on by the government's very close friends in the media, who helped them gain power, time and time again the RET (and the carbon price) are made out to be the root of all evil.

This is despite the data, the facts and the truth from their own departments. I am boggled and stunned by the willingness of our leaders to tell blatantly astounding mistruths about this issue and to conveniently overlook the real source of price rises. Even Joe Hockey (who seems like a nice bloke) jumped on the band wagon on Tuesday suggesting that the RET had something to do with Alcoa’s decision to exit Australia, despite the fact that the company had received hundreds of millions of dollars in exemptions and grants. The only ones not blaming the RET and the carbon price were Alcoa.

The real source of price rises

When you look at the data, it shows you some staggering facts about what is really going on. Take, for example, one of Australia’s largest network owners, NSW Government owned Ausgrid.

Ausgrid has the single largest share of customers in the entire National Electricity Market (around 18 per cent) making them the canary in the coal mine. In their 2013 report, the Australian Energy Regulator had this to say: “There have been many large changes in the relative and overall magnitude of the charging parameters within the period. Of particular note is the 471.14 per cent increase in the fixed charge in 2012-13, 18 per cent decreases in energy charges in 2006-07 and over 200 per cent increases in energy charges in 2009-10.”

Did you get that ? Ausgrid, a government owned network operator, increased fixed charges by 471.14 per cent to business customers.

If you look at it over the period 2004-13 it is a total increase of 1125 per cent. Peak energy costs increased 600 per cent, shoulder by 649 per cent, off peak by 1111 per cent and peak capacity by 869 per cent.

And yet, the RET is the problem apparently.

So despite all the bleating about wanting to reduce peak demand, they have in fact increased fixed charges which consumers can have no impact on, no matter how hard they try. These ”price signals”  are counterintuitive to reducing peak demand and in fact utterly disempower consumers in a most profound way, a fact that was outlined in a report in 2013 by the Centre for Policy Research. And they are completely government sanctioned.

If that’s not enough, the same report actually shows that in 44 out of 46 cases across eight network companies between 2005-11, revenues (that are regulated) were above expectation. That means they made more profit and we all paid for it. And guess what; when you look at the AEMC’s data here’s what it shows is going to happen as a proportion of the average national electricity bill between 2014 and 2016:

·         Distribution network charges will RISE by 8.2 per cent

·         Generation costs will RISE by 5.7 per cent

·         Retail Margins will RISE by 6.3 per cent

·         Transmission costs will RISE by 6.7 per cent

·         The RET (small and large scale) will REDUCE by 55.6 per cent

Of course, these changes could be somewhat masked by state price setting regimes and the assumed removal of the carbon price. How terribly, terribly convenient.

But, of course, there are rewards for electricity consumers in some cases. Years ago, many tariff structures were revised so that there was an incentive to use less energy and to reward energy efficiency. But the AEMC document demonstrates the inexorable shift away from this and back to rewarding higher consumption. Use more and pay less. This works beautifully if your profit comes from meeting this demand or expanding your network to cope, but the impact on the rest of society is that prices rise to fund it all.

Highlighting the case, I spoke to an installer recently who was facing challenges because of this issue. He had stumbled across several large agricultural facilities that were obsessed with ensuring their demand was constantly high enough to get them to the next (lower) tariff rate. The solution? Install a 200kW water pump, suck water out of a dam and pump it back in again. Constantly. 24 hours a day. Wonderfully efficient.

But let's not forget the retailers because, after all, “they just pass on the regulated network costs from the distributors” (like Ausgrid). Poor buggers. They are scrambling to scrap the RET at a rabid pace, have erroneously called it 'middle class welfare' and are laying the blame for the country's woes squarely at our mutual, solar panel installing feet. All the while they have government sanctioned approval to make proportionally more profit from you and me and every single Australian business owner (and Alcoa, of course, had they stayed).

Meanwhile, the regulators and the government just keep saying “Don’t worry, it's OK, you can just switch providers and save a fortune because switching is really, really easy and the market is in a state of healthy market based competition”. Bulldust.

Firstly, the vast majority of the Australian electricity industry is still government owned – not really renowned for innovation or creative market based behaviour, government.

Secondly, consumers are lazy and switching is a pain in the backside. Most of us are too busy dealing with life to worry about trying to save a few percent here or there. Where’s the reward for loyalty gone in this world, for goodness sake? And you know what, switching and “customer churn” is on the increase and the poor utilities are facing increased costs because of it, which is exactly the reason they are allowed to charge us more. Because we are all switching. Because that’s how we’ll save money. But it puts costs up. So it will cost us money. But we should switch because we’ll save money.

You’re getting this, right?

But hey, if we swallow the assumption (and advice from government) that we will save money by switching then that’s awesome. You’ll knock 10 or 15 per cent off my bill? Yes? Awesome, because my last bill was a shocker. Terms and conditions? Yep, read all 279,621 tiny little words of your terms and conditions after following 10 links on your website (lie). Didn’t understand a word (true). Yes, I’ll sign your contract because I’m Australian, you’re Australian and a deal is a deal. I’d spit and shake on it if you weren’t in Bangalore.

Now as it turns out, the totally awesome discount you just got is actually pretty 'fluid'. Turns out current laws allow the retailers to increase the price they charge you for electricity at any time during a contract. But I hate switching, it’s a pain, so I’ll just lump it in six or 12 months when you hit me with a price rise caused by factors completely outside your control.

Wow, that wasn’t such a good deal after all.

The rules

Then there are the rules. My god, the rules. Simply trying to understand the rules and regulations that govern the industry, how they translate to your bill and what they can and can't do is like trying to understand what your Optus phone is actually costing you. You have absolutely no hope.

Take business customers for example. I recently analysed five business bills which were from different locations in Australia but all similar costs and, by coincidence, all from the same retailer.

Firstly, there was a a complete lack of consistency which made understanding and comparing them virtually impossible. Different terms for the same thing, slight changes in wording, some charges on energy, some on demand – an utter lack of consistency. In some cases customers paid for simply awesome things like “VIP metering” and “Consumer advocacy”. Unreal. If I was a business owner, I would be so impressed to know that my retailer is charging me to be an advocate. For me. And then charging me. Now that’s service.

Then there is the complete and total transparency which allows me to compare commercial offerings. Yep, you can go to a website, look at every offer in the market, upload your consumption data and work out which offer is best. And it's easy (switching, remember?). Bull.

There is a chasm greater than Western Australia’s Big Pit here.

First, if you want to know your demand profile, they’ll take weeks and probably charge you. For knowing. Your consumption.

Secondly, if you ask for an offer, they’ll pretty quickly slot you into a demand “band”. No one actually knows what these bands are or what they mean and they vary by region, by offer, by your size and the colour of your neighbour's hair (God help you if they are a blood-nut). It’s like a mystery flight; just shut up, sit down and hang on. If you don’t know your demand yet, don’t worry because they have a secret formula so they can tell you how much it will cost and what your profile will look like. Without knowing anything about your demand. At all.

But hey, I’m probably being unfairly critical because it's complicated; I couldn’t possibly hope to understand. Go right ahead.

Then of course, you might have a relationship going back many, many years with your retailer. You watch the news, you’ve seen the drought, you listened to the issues about peak demand and the greatest moral issue of our time and you decided; screw it. I’ll stump up hundreds of thousands of dollars of my own money and whack some solar up.

Your retailer's reaction? Well at least one I know of said “Awesome!” “We’ll just renegotiate the contract you broke, your energy rate will dramatically reduce from 25c kWh to 5c. Your standing charges (don’t worry about them) will increase from 25c a day to $2 day”. For those unfamiliar, that’s called 'the big switcheroo', formerly the domain of dudes in weird waistcoats with cups and balls, but now a wholly owned subsidiary of electricity retailers.

Oh, and because the rules have changed to protect consumers (enter the National Energy Customer Framework), if you want solar we will need to come and do a horrendously expensive study because, well, the fact that you have been on our network for 30 years and we approved everything counts for nothing. Because we have to protect you. In one actual case from a network operator one of the reasons they gave for delaying a solar installation was, and I quote “The LV OH supply from the council access track north of premises is quite sneaky visually and very hazardous to the unsuspecting. “

Damn it, sneaky wires. That’s a damn good reason to stop progress and infuriate a 30-year customer who’s (sneaky) installation was approved by you. You’re right. We are busted for excessive sneakiness.

I was also fascinated to see the variation in loss factors that are applied to bills, as a separate and definable item. They varied between 0.1 per cent and a staggering 15.19 per cent. and are applied as a multiplier to the energy you consume. So in one case the business bill I looked at was 15.9 per cent higher than its actual consumption because the network is so grossly inefficient at delivering energy to that premises. That’s akin to a mechanic saying “sorry mate, I spilled 15.9 per cent of the oil when I was doing your service because my pipe has a leak, but the law says I can charge you for it”. 

Not only are they allowed to do this by law, but they will charge you a huge proportion of your bill for building, owning, operating and maintaining that same network, then charge you (again) if they happen to do a lousy job of it where you happen to have your business. Really.

Then we can also consider the regulations around the pass through of the costs of RET. In NSW for example, retailers were allowed (by the state regulator) to pass through the “full cost” of certificates at $40 and recover these costs from consumers and business. The catch here is the real price of certificates has moved from $16-$36 over the last few years and, of course, if those same retailers create their own certificates (by selling you a solar system and capturing the STCs) then they could get prices way down. So we know and it has been acknowledged by IPART that the retailers stood to gain, potentially substantial, sums from this quirk.

So in reality the RET and the SRES, in particular, have contributed to the profits of the retailers.

I could go on with myriad other examples but I suspect you get my point.

The government owns, regulates and controls the vast majority of the electricity industry in Australia all the way back to the coal reserves in some cases. The make a phenomenal amount of money from it, as do the non-government retailers – and they don’t want it to change. The US-based Edison Electric Institute (an electricity industry think tank) summed up the substantial concerns of their industry to disruptive challenges in blunt terms in a document released last year, warning that industry had to adapt or perish. Through their vast media connections they will say what is politically convenient even if it is complete and utter rubbish, and we won't even get a return phone call from the same reporters.

It seems to me that they have all got themselves into a corner so dark, they just have to keep rolling out the same rubbish and hope no one notices.

Guess what? We noticed.

Nigel Morris is director of Solar Business Services.