The real cause of energy price rises

Excerpt from an article by Matthew Warren, Chief Executive, Energy Supply Association of Australia

A proposed cut to the regulated electricity tariff in South Australia has been sold as the solution to rising power bills. If only it were that easy. Sadly, you can’t regulate away the drivers of rising energy bills any more than you can with other goods and services in the economy. Despite this, the price of electricity is still regulated by governments or their agencies in five out of six Australian states and in both territories.

The tangible real costs involved with replacing and upgrading the network of electricity poles and wires, along with greenhouse abatement measures including a carbon tax and renewable energy subsidies. has caused sharp increase in energy costs all around Australia over the past five years. The only way to bring down – and keep down – power bills is to fix the issues that are driving costs up. If anything, ratcheting down regulated tariffs will only make things worse.

History shows that nearly two decades ago, national and state governments committed to the reform of energy markets across Australia, as a result a national electricity market was established in 1998. States like Victoria and South Australia sold off most of their energy businesses. Victoria also removed price regulation, opening up energy markets to competition without calamity.  We have had studies from international experts telling us that continuing to regulate in competitive markets is bad for consumers. However some state governments are buckling under short-term political pressure and signalling a return to more regulation. A draft decision by the Essential Services Commission of South Australia (ESCOSA) last week flagged an 8 per cent cut in regulated electricity prices in the state from January 1 next year.

Right now, competition determines prices for almost four out of five household customers in South Australia. If enacted, the regulator’s draft decision to cap prices will only directly affect the few households who haven’t taken advantage of the many discounted offers in the marketplace.

More dynamic and flexible pricing can lead to real savings, but these won’t be realized while governments keep power prices in the straitjacket of regulation. We’d be better off if governments revived their commitment to competition, giving consumers more choice between different deals and more opportunities to save on their power bills by being smarter with their energy use. That will not only make real savings on power bills now, but help prepare consumers for the transformation of our energy system over the next generation.

17 Oct 2012

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