According to the ACCC report on the electricity affordability crisis, an average 2015-16 residential bill was $1,524 (excluding GST), and almost half of the bill was made up of network costs.

Exorbitant network costs are to blame for the huge electricity hikes that are crippling businesses and households all over Australia.

That’s the finding of the Australian Competition and Consumer Commission (ACCC), which today released a preliminary report on the electricity affordability crisis.

“The main reason customers’ electricity bills have gone up is due to higher network costs, a fact which is not widely recognised. To a lesser extent, increasing green costs and retailer costs also contributed,” ACCC Chairman Rod Sims said.

“We estimate that higher wholesale costs during 2016-17 contributed to a $167 increase in bills. The wholesale (generation) market is highly concentrated and this is likely to be contributing to higher wholesale electricity prices.”

According to the report, on average across the National Electricity Market, a 2015-16 residential bill was $1,524 (excluding GST). And almost half of this average residential bill was made up of network costs (48%). While wholesale was the other significant cost, making up 22% of the charges.

Power bills have increased by 63% on top of inflation since 2007, and Mr Sims says it is placing “Australian businesses and consumers under unacceptable pressure”.

“Armed with the clear findings on the causes of the problem, the ACCC will now focus on making recommendations that will improve electricity affordability across the National Electricity Market,” he continued.

What can be done?

In response to these findings, the ACCC will be examining ways to reduce the existing network costs.

“For example, the Finkel Review found that consideration should be given to writing down asset values, either voluntarily or compulsorily, where appropriate. Such a write-down may be appropriate where it can be determined that over-investment has occurred or where assets become stranded,” the report stated.

“The nature of electricity networks is changing. Solar PV, smart meters, batteries, and other devices are increasingly able to help consumers strategically control their electricity usage, and feed into a more distributed market model. However, this presents policy challenges as well as opportunities.

“Part of the solution is likely to be moving towards the use of smart meters and cost reflective pricing. The opt-in nature of cost reflective tariffs may be a barrier to broader take-up. The ACCC will give further consideration to this issue. It is also critical that tariffs are designed in a way that will demonstrate clear benefit to consumers and provide incentives for retailers to use them. The ACCC will be exploring these issues in more detail.”

“Recommendations for reform” will be published in the ACCC’s final report in June 2018, but it’s imploring governments to take these initial steps.

  • Provide additional resourcing to the Australian Energy Regulator’s (AER) Energy Made Easy price comparison website as a tool to assist consumers in comparing energy offers
  • State and territory governments should review concessions policy to ensure that consumers are aware of their entitlements and that concessions are well targeted and structured to benefit those most in need.
  • Improvements to the AER ability to effectively investigate possible breaches of existing regulation, for example the power to require individuals to appear before it and give evidence. Consideration should also be given to the adequacy of existing infringement notices and civil pecuniary penalties to deter market participants from breaching existing regulations.

Victoria comes out on top

The report — which received more than 150 submissions since it began in April — has deduced that Victorians have paid the least for their electricity in the last year.

“The ACCC estimates that in 2016-17, Queenslanders will be paying the most for their electricity, followed by South Australians and people living in NSW. Victorians will have the lowest electricity bills. This is due to a range of factors including usage patterns in various states, including the prevalence of gas usage in Victoria in particular,” the ACCC media release stated.

“The closure of large baseload coal generation plants has seen gas-powered generation becoming the marginal source of generation more frequently, particularly in South Australia. Higher gas prices have contributed to increasing electricity prices.”