A successful legal challenge from NSW electricity networks leaves household and farm customers across the country exposed to further power price hikes.
The Australian Energy Regulator (AER) overruled rates set by NSW electricity networks in 2015. The networks challenged to the AER’s lower rates in the Federal Court was upheld this week.
The regulator said ruling could set a precedent which impacts power prices in other states.
Network charges comprise on average more than 40 per cent of household electricity bills.
In a joint statement, NSW Irrigators and Cotton Australia said they “are shocked and appalled” at the Federal Court’s decision.
The “disappointing” decision could impact other states, the AER said. But it comes as a boon to investors in the newly privatised NSW networks Ausgrid and Endeavour Energy.
NSW Instigators and Cotton Australia said the decision “blocks the path to reduced electricity prices” will cost farmers thousands of dollars a year.
Network charges hinge on so-called “gold plating” - or building unnecessary or inefficient networks to expand their asset base.
The court challenged was over poles and wires infrastructure built between 2014 and 2019 by the networks.
The asset base determines the revenue that networks can reclaim through electricity bills. The bigger the networks’ asset base, the larger their returns, regardless of customer demand for new infrastructure.
NSW Irrigators policy manager Stefanie Schulte said the court ruling sets a concerning precedent.
“Without a strong regulator to stop persistent gouging by the electricity companies, the increases will continue indefinitely,” Ms Schulte said.
“With the advantage now firmly to electricity distributors, there is no longer a brake against increasing electricity prices.”
Historically, network infrastructure investment has been based on questionable forecasts of growing electricity demands, which has since failed to materialise.
Across Australia, the network’s asset base had grown 400pc in the past 15 years.
Australian network assets appear inefficient compared to international benchmarks. The asset value for each connection in Australia is nine times that of the U.K.
Network operators borrow cheaply from government, typically at 4pc to 5pc interest, and claim capital costs of up to 10pc. The cost is passed through electricity retailers and onto consumers’ bills.
The difference between the interest payment and capital costs was pocketed as profit. Industry profits rose 67pc between 2007 and 2011 which resulted in bills spikes of 40pc over the same period.
“If energy costs continue to climb at their current rate, or even higher, we are likely to see an exodus of farm businesses from the grid,” said Cotton Australia policy officer Felicity Muller.
Analysis by NSW Farmers showed agricultural energy productivity had declined 21 per cent since 2008, while other industries became more efficient. The major factor was rising electricity costs, which had turned farmers away from the grid and back onto diesel generation.
Ms Muller said the network court victory had “enormous consequences” rural communities, “who will bear the brunt of the flight from the grid, as well for the environment, as farmers will be forced to turn to diesel in order to run farm equipment”.
A recent submission to the the federal government’s inquiry into the electricity network from a taskforce of agricultural representative groups highlighted concerns of many in the sector caused by spiralling electricity costs.
Most electricity users’ power bills have doubled, or more in some cases, in the past seven years, driven largely by the cost of network operators’ investment and upkeep of their transmission infrastructure.
Rising costs may make electricity unaffordable for some, which could effectively hollow-out the grid, the taskforce said.
A dwindling pool of ratepayers will exacerbate the challenge of maintaining the grid infrastructure as fewer and fewer customers are called on to foot the bill.
The taskforce encouraged government to pursue regulations for cost reflective pricing, arguing for a rule change so networks can only charge for “useful and used” assets.
In 2015, the AER set lower revenues than proposed by the network businesses “partly because we concluded that costs above efficient levels should be funded by the network owners, not customers,” said AER chairwoman Paula Conboy.
The AER is considering a challenge to the court’s decision.