Drought drives power prices up

Canberra Times
Saturday 12/5/2007 Page: 1

Electricity prices will soar 14.25 per cent from July 1 if a draft report issued yesterday by the pricing regulator is confirmed - but Canberra's main energy supplier says a 34 per cent increase is warranted. The move for a dramatic price increase is the result of the escalation in wholesale electricity costs caused by the drought.

The Snowy Hydro scheme, which normally supplies about 15 per cent of electricity for the national grid - importantly for Canberra at peak times - is struggling badly with Lake Eucumbene and Lake Jindabyne desperately low. The drought is also limiting output from some coal-fired Queensland generators, unable to maintain supply because they have insufficient water to create steam for their turbines.

In a draft decision yesterday, the ACT Independent Competition and Regulatory Commission determined the retail price of electricity for domestic consumers should increase by 14.25 per cent from July 1. But the price increase could be greater, with submissions on the draft decision due by June 8 before the commission's final decision a week later.

ActewAGL is expected to make a submission, seeking an increase considerably above the regulator's figure. Under the proposed increase, the average annual household power bill would rise by $158 from $1112 to $1270. Senior commissioner Paul Baxter said the key question was whether wholesale prices had peaked or were still increasing. "The biggest concern we have is that we don't discourage competition by holding the price too low," Mr Baxter said. Neither did the commission want to cause a collapse in the market as occurred about five years ago in California when retail prices were set below the wholesale price.

ActewAGL's general manager retail, Ivan Slavich, said the commission's draft determination was based on a wholesale price of $58 a megawatt-hour. The current price was $80. In a competitive market, the retail price should be the market price - what a new entrant would have to pay to compete. Mr Slavich would not say how much ActewAGL was paying for its wholesale electricity, but said at the current wholesale price, the domestic retail price should increase by 34 per cent. Otherwise, ActewAGL would have to sell electricity for less than what it paid for it.

"Your readers should realise there will be no windfall gains from this." Given increased costs, he also warned that ActewAGL might need to review its popular bundling options where consumers received discounts if they were customers of other ActewAGL or TransACT products. However, he guaranteed existing contracts would be honoured. The proposed price increase includes about 3 per cent to cover the ACT Government's controversial network facilities tax announced in the last ACT budget.

This has added $5.5 million annually to the network component of the cost of electricity in the ACT. Mr Baxter said the Government had increased funding for rebates on energy, water and sewerage bills to reduce the impact of the tax on pensioners, health -care -card holders and Department of Veteran's Affairs gold-card holders. About 12 months ago, the commission recommended to the Government that domestic electricity prices be set by the market, as are gas prices.

But as with all other jurisdictions, the ACT Government continues to require prices for consumers who use less than 100 megawatt hours of electricity a year to be capped. The price set by the commission from July 1 will be for 12 months. Mr Baxter said he was seeking advice on whether it would be possible to vary the price during the year. Energy Retailers Association executive director Cameron O'Reilly said it might not be much comfort to ACT residents, but other Australians were experiencing similar pressures. Prices were traditionally lower in autumn and the present prices were unprecedented in the national electricity market.

Mr O'Reilly said wholesale and network costs comprised about 90 per cent of the electricity price. The association believed the best results for consumers occurred when the market set the price. Energy was becoming more analogous to petrol pricing and governments should not dictate price changes. Mr Slavich said that with wholesale prices at the current level, renewable generators such as wind farms would be viable. The price rise had also increased the possibility of a gas-fired power station in the ACT.

Chief Minister Jon Stanhope could not be contacted yesterday.