Power giants warned on price rises

Summaries - Australian Financial Review
Monday 4/1/2010 Page: 1

As the electricity and gas sector gears up for a record level of spending to upgrade its ageing assets and ready itself for the Rudd government's greenhouse reduction policies, the Australian Energy Regulator will ask companies to justify price rises. With electricity and gas networks planning to spend over $30 billion in the next five years, this will increase pressure on energy prices as costs are passed on to consumers.

Chairman of the AER, Steve Edwell, says he has written and spoken to the energy companies and urged them to advise corporate customers in advance over price rises. The Energy Users Association of Australia recently passed a resolution at a members meeting and expressed concern over the increases in network charges, and plans to write to governments and regulators over the issue. Its members include Rio Tinto and Wesfarmers.

EUAA executive director Roman Domanski said getting hit with large network prices increases at short notice is a major concern for business and affects their competitive position. Mr Edwell says gas prices may rise as new domestic contract prices rise closer to global levels, which is already happening in Western Australia where producers chase lucrative liquefied natural gas (LNG) contracts.

LNG projects are being particularly pursued in Queensland's Gladstone area, where several projects that rely on coal seam gas are proposed. The AER has proposed around $33 billion in capital spending. The regulator issued draft decisions to allow Queensland's Energex and Ergon Energy to have $10.19 billion in capital spending, and a capex of $1.63 billion for South Australia's ETSA Utilities distribution business.

Peak industry group the Energy Networks Association predicted that climate change policies would lift network costs by around $2.5 billion over the next five years. Victoria's SPAusnet is also concerned over spending on new connections to the network due to renewable energy targets and the emissions trading scheme. The New South Wales' regulator's approval of capital investment worth $14 billion includes $2.4 billion of capital investment by TransGrid in its electricity transmission network.