Federal and State leaders agree on plan to reduce power bills by $250 a year.

Federal and state leaders have agreed on a plan aimed at curbing power price rises.

Prime Minister Julia Gillard says will save households about $250 a year once it is fully implemented. The agreement, reached during today’s Council of Australian Governments (COAG) meeting, does not involve the mandatory rollout of so-called smart meters.

This change affects all of Australia as Ms Gillard says all states have agreed to work on options for more flexible pricing. “We will be working with consumers to give them more options and choices about how they consumer their power,” she told reporters in Canberra.

As a result, the Commonwealth has committed an extra $23 million to boost the resources of the Australian Energy Regulator (AER). ”We will be introducing rewards into the system so that big users, big businesses can moderate power loads that they put on the system during peak times. “We will be addressing the gold-plating of the system and overinvestment in the poles and wires. As part of efforts aimed at reducing the “perverse incentive” to overinvest in transmission lines”

Unfortunately, there is already criticism of the plan from some state leaders.

Victorian Premier Ted Baillieu expressing disappointment the changes to the AER do not go further. “The Commonwealth declined to commit to an independent Australian Energy Regulator which means Victorians and Australians face the prospect of sub-optimal regulatory decisions,” he said. “This will increase pressure on energy prices for Victorian families and businesses.” His concern for the prices to allow for reasonable energy costs for Victorian electricity users.

West Australian Premier Colin Barnett is not convinced the plan will deliver the promised savings. “Well there is agreement to reform it (the energy market),” he told ABC News 24. “Whether that will provide price relief, I doubt. Maybe it will mean price increases in the future won’t be as great.”

Lowering the prices and costs of energy would be highly beneficial, but a slower rise may be all that these changes see.

Ms Gillard says the $250 savings estimate is based on a report by the Productivity Commission, although she concedes today’s agreement differs from that document. The Commission’s estimate was based on a scenario where households would be required to have a smart meter. Dec 18, 2012

Read more about the COAG and the Electricity price plan