Electricity providers have stung their customers for $10 billion in supernormal profits, despite crying poor to the regulators and despite siphoning out billions, largely free of tax to foreign billionaires and power companies. Mark Sawyer reports on the latest analysis of Australia’s energy sector.

An important report was released at a minute after midnight today. The report, by the Institute for Energy Economics and Financial Analysis (IEEFA), shows that while energy giants have been crying poor, they have ripped off Australian customers to the tune of $10bn in “supernormal profits”.

BY Mark Sawyer

It found that electricity consumers have paid substantially higher bills than necessary for ‘‘poles and wires’’, providing a hefty $10 billion in supernormal profits for energy network providers in the eastern states of Australia over an eight-year period due to flaws in network regulation.

This is classic ‘gold-plating’ in the industry parlance. The more the network giants can convince the regulators they need to spend on poles, wires and other business expenses, the more they recoup from the regulators in higher bill prices from customers.

The report, Regulated Electricity Network Prices Are Higher than Necessary, found the actual profit that energy network providers received from electricity consumers over 2014 to 2021 was 67% higher than the normal level of profit.

Yet despite the super-profits, the National Energy Market (NEM) operator AEMO was forced to take the radical step of suspending the market three months ago as the suppliers threatened to withhold supply unless they were paid more.

In its report, examines issues related to energy markets, trends and policies. Its mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

The report’s author, Simon Orme, is a regulatory economist with long background in Australian and New Zealand economic regulation in the utility sector.

‘‘Poles and wires’’ distribution and transmission network service businesses, including the likes of United Energy, Endeavour, SA Power Networks and AusNet, have consistently been charging electricity consumers too much – around 11% more than total costs. Of the 18 network service providers (NSP) analysed, 14 extracted profit above IEEFA’s expected profit multiple range.

This has imposed an unnecessary additional average cost of 6.8% onto people’s electricity bills in 2020, or between $800 to $1200 per energy customer over the eight-year period, depending on the state they live in, with no additional reliability benefits because the supernormal profits are after all network reinvestment.

In June, big players in the grid refused to deliver to power consumers. Not enough profit they claimed. Finally the Australian Energy Market Operator (AEMO) called their bluff and suspended the market.

As it turned out it it was crocodile tears. Apparently they are in business never to make a loss, even on a daily basis that the regulators won’t pay them for.

Meanwhile, much of the supernormal profits have likely gone to offshore owners. As investigated by MWM, many of them are big tax avoiders; the likes of Energy Australia and Hong Kong billionaire Li Ka-Shing’s companies in Australia which control the Victorian grid. 

The report finds the complex regulatory system designed to prevent sustained excessive network monopoly profits has failed due to weak laws and rules regulating networks and a lack of transparency over the extent of monopoly profits. In IEEFA’s view, the supernormal profits of $10 billion over 2014-2021 appear inconsistent with the National Electricity Objective.

The enormous supernormal profits have also hindered Australia’s necessary transition to a low carbon electricity system by diverting funds that could have been used to fund the energy transformation.

The new information and commentary in the network section of the 2022 State of the Energy Market report released on Thursday does not invalidate any of the analysis and findings of the IEEFA report. They reinforce the need for strong government action to fix failures in the existing systems regulating electricity network prices.

READ MORE:

https://michaelwest.com.au/gold-plated-rort-power-users-pinged-10bn-as-networks-cry-crocodile-tears/

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