CCIQ urges more effort needed on trimming electricity bills

Thursday 6 November, 2014 | By: Darrell Giles | Tags: electricity prices, energex, ergon;

The Chamber of Commerce and Industry Queensland (CCIQ) says there is more work to be done to ease rising electricity costs for Queensland consumers.

CCIQ welcomes the release this week of Energex and Ergon Energy proposals for their revenue allowance for the next five years.

The proposals suggest some price stability for consumers before 2020, but CCIQ believes there is “significant fat to be trimmed” off the network businesses to bring costs down.

The two network distributors apply to the Australian Energy Regulator (AER) every five years for their allowable revenue over that period. The regulatory process governs how much money network companies can collect from consumers each year.

The revenue approved by the AER is passed directly on to consumers, with the more revenue recovered, the higher the costs for consumers.

Queensland small businesses had seen unsustainable increases in electricity prices in recent years.

CCIQ General Manager of Advocacy Nick Behrens said Queensland small businesses had been hit hard by repeated increases in electricity prices, creating a difficult operating environment.

“Electricity prices have, on average, doubled for business over the past seven years, which has created an enormous hurdle for businesses trying to remain competitive,” Mr Behrens said.

“Most of the high electricity costs in the last regulatory period were attributed to ‘gold plating’ the system through expanding the network infrastructure.

“This over-spend was based on poorly estimated demand forecasts which saw prices skyrocket.

“The AER revenue determination process is particularly pertinent, as the network cost component makes up more than half of the average electricity bill. Therefore, in order for small businesses to see real cost savings, the network charges must be drastically reduced.”

Mr Behrens said that while Energex has submitted lower capital and operational expenditure figures (investing in assets and running those assets) than the last regulatory period, their weighted average cost of capital (WACC), or profit margin, was excessive compared to other relevant benchmarks.

Similarly, Ergon Energy proposes reductions in their capex and opex from the previous regulatory period, but a higher WACC than recommended benchmarks.

Energex is seeking a total of $8.4 billion (up from $7.4 billion for the current five-year regulatory period) and Ergon is seeking $7.6 billion (up from $7.1 billion).

“CCIQ is unaware of any private sector business at present that could increase their prices by the magnitude of what is being proposed,” Mr Behrens said.

“The practical result of this complex issue is that Queensland electricity consumers will be paying a higher electricity price than they otherwise should have to if Ergon and Energex were to adopt comparable industry benchmarks.”

The AER will hold a public forum on December 9 to allow consumers to question the networks on their proposals. Mr Behrens said CCIQ would make a submission to the AER ahead of its preliminary determination in April. The AER will publish its final determination on October 31, 2015.

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