Energy regulator must crack down on potentially rule breaking excess profit.
The National Irrigators’ Council (NIC) on behalf of the Agricultural Industries Energy Taskforce (the Taskforce) has released a damning independent report showing that profits made by electricity networks are more than $2.6 billion higher than they should be – meaning electricity bills are much higher than is justified, just with network costs.
The independent report by Sapere Research Group compared profit data recently released by the Australian Energy Regulator (AER) with the profit ‘allowed’ under the AER’s Rate of Return guidelines.
NIC CEO Steve Whan said “Australian agriculture is struggling to remain competitive under the burden of massive increases in energy prices. Frankly, if this problem isn’t fixed, we can forget about being the ‘food bowl’ for Asia, and we can forget about the tens of thousands of jobs that would generate.
“The Ag Energy Taskforce is a group of peak agricultural groups who want to see more than just talk and tinkering from the electricity regulators. Taking action on network profits is the next important step – and is consistent with – the Government’s announcements on market operation earlier this week.
“We funded this study because bizarrely the AER is proposing to issue a new ‘Rate of Return’ guideline which does not include analysis of actual profits being made by the electricity networks.
“Our groups believe that the Rate of Return the regulator allows the networks to earn, should reflect an economically efficient return based on real world data from Australia and other comparable countries. It should not be based on a theoretical model that overstates the risk and cost of finance that monopoly owners actually enjoy in Australia.
“Sapere’s research uses AER published profit data for 18 companies covering the four years up to 2016-17 (2017-18 has not been released and should be!). The report concludes that network financing costs are significantly lower than allowed for in the Weighted Average Cost of Capital.
“Sapere has made a conservative estimate that ‘based only on the AER’s rate of return data, along with AER data on the regulatory asset bases (RABs) of the networks, allowed returns exceeded efficient returns over the four year period by more than $2.6 billion or 14.6 per cent above allowed returns of $18.1 billion’.
The report concludes, “these super-normal, or monopoly, returns are in breach of the National Electricity Rules. They represent payments for services that are not actually being rendered by the electricity networks as a group.”
Steve Whan said “we call on the AER to introduce a Rate of Return method that uses actual data on network returns and which will significantly reduce the unjustified gold plated profits being raked from Australian electricity consumers.
“This research tells us that these excessive profits have cost an average irrigator $6,000 too much over the past four years.
“The Taskforce believes we should be paying as a maximum 8 cents per kw/h for electrons and 8 cents for supply.
“Getting there needs a combination of factors, many outlined by the ACCC in their report and some announced by the Government earlier in the week.
“But network profit margins are, in several states, the big nut to crack and the AER needs to take real action to bring them back to reasonable levels.”
Media Contact: Steve Whan 0429 780 883
Thursday 25 October 2018
Note: The Ag Energy Taskforce appreciates financial contributions from its members National Irrigators’ Council, CANEGROWERS, Cotton Australia, Central Irrigation Trust, Bundaberg Regional Irrigators Group, National Farmers Federation, Queensland Farmers Federation and Dairy Connect and in-kind contribution from Sapere Research Group in undertaking this report.
The report is available on-line from the link in the media release or here.