Tony Abbott is right about one thing: the price of
electricity has shot up and is now a lot higher than it should be. It's a
scandal, in fact. Trouble is, the carbon tax has played only a small
part in that, so getting rid of it won't fix the problem.
Until a
rotten system is reformed, the price of electricity will keep rising
excessively, so I doubt if many people will notice the blip caused by
the removal of the carbon tax. (As for the price of gas, it will at
least double within a year or two, as the domestic price rises to meet
the international price, making the carbon tax removal almost
invisible.)
So Abbott will be in bother if too many voters
remember all the things he has said about how much the tax was
responsible for the rising cost of living, how much damage the tax was
doing to the economy and how much better everything would be once the
tax was gone.
He would be wise to change the subject and join the push to reform the electricity pricing arrangements.
A
new report by Tony Wood and Lucy Carter, of the Grattan Institute, Fair
Pricing for Power, says that over the past five years the average
Australian household's electricity bill has risen by 70 per cent to
$1660 a year.
And this has been happening while the amount of
electricity we use has been falling, not rising. Just why electricity
demand has been falling is a story for another day.
The cost of
actually generating the power accounts for 30 per cent of that total.
The cost of delivering the power from the generator to your home via
poles and wires - that is, the electricity transmission and distribution
network - accounts for 43 per cent of the total.
That leaves the
costs of the electricity retailer - the business you deal with -
accounting for 13 per cent of the total bill, with the carbon tax making
up 7 per cent and the various measures to encourage energy saving or
use of renewables making up the last 7 per cent.
Of these various
components, the one that does most to account for the rapid rise in
overall bills is the cost of the physical distribution network. Whereas
there's fierce competition between the now mainly privately owned power
stations, the network businesses - still government-owned in NSW and
Queensland, but privatised in Victoria and South Australia - are natural
monopolies.
This means the prices the networks are allowed to
charge - whether government or privately owned - are regulated by
government authorities. And this is the source of the problem. Loopholes
in the price regulation regime have made it easy for the network
businesses to feather their nest at the expense of you and me.
Why
would a government-owned network business want to overcharge? Because
their profits are paid to the state Treasury, which needs all the cash
it can get. So the NSW and Queensland governments gain by looking the
other way while their voters are ripped off. The gouging hasn't been
nearly as bad in privatised Victoria, where electricity prices are well
below the national average.
An earlier report from the Grattan
Institute identified four main faults in the system used to regulate the
prices of network businesses: the pricing formula allows excessive
rates of return, considering essential monopolies are low-risk;
government ownership leads to excessive investment in infrastructure and
reduced efficiency; reliability standards to prevent blackouts are
wastefully high; the pricing formula rewards investment in facilities
you don't really need.
The various combined state and federal
regulatory bodies have belatedly begun attempting to fix these problems,
but they could do a lot more if the politicians prodded them harder.
Meanwhile,
the latest Grattan report proposes a solution to one aspect of the
over-investment problem: coping with peak demand. The trouble with
electricity networks is that, if you want to avoid blackouts, the
network has to be powerful enough to cope with the periods when a lot of
people are using a lot of electrical appliances at the same time, which
these days is a hot afternoon.
Over the course of a year, these
occasions are surprisingly few, so you end up having to build a lot of
capacity, which is expensive, but then is rarely used. It would make far
more sense to encourage people to avoid such extreme peaks in their
demand.
The way the pricing system works at present, however, is that far from discouraging people from buying airconditioners and turning them on full blast on very hot afternoons, they're subsidised by those householders who don't.
The
simple answer would be for the part of people's bills that relates to
their share of network costs to be changed from charging for how much
power they use to a capacity-based charge. That is, they pay according
to the maximum load they put on the network in peak periods.
The
result would be to remove the subsidy between high and low-capacity
users, increasing or reducing their bills by up to $150 a year.
The
greater benefit would be the price signal sent to high-capacity users
to reduce their use of appliances during peak periods and save. As
people responded to this incentive, the need to keep adding to the
network's capacity would fall, thus reducing the need for higher
electricity prices.
