The great Australian electricity rip off

20 Feb, 2014

Right, now I’m really, really annoyed.

Although I’ve spent more than two decades in the solar and energy field, in the last two years as solar has grown and we have become an intrinsic and material part of  Australia’s energy mix I have come to realize something fundamental.

The Australian public is being duped and constantly lied to on a monumental scale when it come to electricity.

Now I am a fundamentally trusting person; it’s the way I was brought up. I’m not a conspiracy theorist. I always give people, Governments and corporations the benefit of the doubt.

However, the more I read, research and understand about the way our electricity system operates the more alarmed I become. I admit, I am not an expert in the complex and ever changing world of electricity regulation, but a lot of what is happening in the industry is not rocket science. Events of the last few weeks have simply brought it all home for me.

Lets look at a few examples.

The RET

The facts on what the RET does and doesn’t cost are absolutely, 100% clear, ironically thanks to a Government body, The Australian Energy Market Commission. It’s the single smallest component of electricity bills  (bar one) and is already declining in proportional terms.

And yet, from the Prime Minister all the way down to the subtle messages passed on to their very close friends in  media who helped them gain power, time and time again the RET (and the Carbon Price) are made out to be the root of all evil.

This is despite the data, the facts and the truth from their own departments. I am boggled and stunned by the willingness of our leaders to tell blatantly astounding mistruths about this issue and to conveniently overlook the real source of price rises. Even Joe Hockey (who seems like a nice bloke) jumped on the band wagon yesterday suggesting that the RET had something to do with Alcoa’s decision to exit Australia, despite the fact that the company had received hundreds of Millions of dollars in exemptions and grants. The only ones not blaming the RET and the Carbon Price, were Alcoa.

The real source of price rises

When you look at the data, it shows you some staggering facts about what is really going on. Take for example, one of Australia’s largest network owners, NSW Government owned Ausgrid.

Ausgrid has the single largest share of customers in the entire National Electricity Market (around 18%) making them the canary in the coal mine. In their 2013 report, the Australian Energy Regulator had this to say: “There have been many large changes in the relative and overall magnitude of the charging parameters within the period. Of particular note is the 471.14 per cent increase in the fixed charge in 2012–13, 18 per cent decreases in energy charges in 2006–07 and over 200 per cent increases in energy charges in 2009–10.”

Did you get that ? Ausgrid, a Government owned network operator increased fixed charges by 471.14 % to business customers.

If you look at it over the period 2004 to 2013 it is a total increase of 1125%. Peak energy costs increased 600%, shoulder by 649%, Off peak by 1111% and peak capacity by 869%.

And yet, the RET is the problem apparently.

So despite all the bleating about wanting to reduce peak demand, they have in fact increased fixed charges which consumers can have NO IMPACT on, no matter how hard they try.  These  “price signals”  are counter intuitive to reducing peak demand and in fact utterly dis-empower consumers in a most profound way, a fact that was outlined in a report in 2013 by the Centre for Policy Research. And they are completely Government sanctioned.

If that’s not enough, the same report actually shows that in 44 out of 46 cases across 8 network companies between 2005 and 2011, revenues (that are regulated) were ABOVE expectation. That means they made more profit and we all paid for it. And guess what; when you look at the AEMC’s data here’s what it shows is going to happen as a proportion of the average National electricity bill between 2014 and 2016:

  • Distribution network charges will RISE by 8.2%
  • Generation costs will RISE by 5.7%
  • Retail Margins will RISE by 6.3%
  • Transmission costs will RISE by 6.7%
  • The RET (Small and Large scale) will REDUCE by 55.6%

Of course, these changes could be somewhat masked by State price settinghours a day.  regimes and the assumed removal of the Carbon Price. How terribly, terribly convenient.

But of course, there are rewards for electricity consumers in some cases. years ago, many tariff structures were revised so that their was an incentive to use less energy and to reward energy efficiency. But the AEMC document demonstrates the inexorable shift away from this and back to rewarding higher consumption. Use more and pay less. This works beautifully if your profit comes from meeting this demand or expanding your network to cope but the impact on the rest of society is that prices rise to fund it all.

Highlighting the case, I spoke to an installer recently who was facing challenges because of this issue. He had stumbled across several large agricultural facilities that were obsessed with ensuring their demand was constantly high enough to get them to the next (lower) tariff rate. The solution? Install a 200kW water pump, suck water out of a dam and pump it back in again. Constantly. 24 hours a day.

Wonderfully efficient.

But lets not forget the retailers because after all “they just pass on the regulated network costs from the distributors” (like Ausgrid). Poor guys. They are scrambling to scrap the RET at a rabid pace, have erroneously called it  middle class welfare and are laying the blame for the countries woes squarely at our mutual, solar panel installing feet. All the while they have Government sanctioned approval to make proportionally MORE profit from you and me and every single Australian business owner (and Alcoa of course, had they stayed).

Meanwhile, the regulators and the Government just keep saying “Don’t worry. its ok, you can just switch providers and save a FORTUNE because switching is really, really easy and the market is in a state of healthy market based competition”. Bullshit.

Firstly, the vast majority of the Australian electricity industry is still Government owned. Not  really renowned for innovation or their creative market based behaviour, the Government.

Secondly, consumers are lazy and switching is a pain in the backside. Most of us are too busy dealing with life to worry about trying to save a few percent here or there. Where’s the reward for loyalty gone in this world, for goodness sake? And you know what? Switching and “customer churn” is on the increase and the poor utilities are facing increased costs because of it which is exactly the reason they are allowed to charge us more. Because we are all switching. Because that’s how we’ll save money. But it puts costs up. So it will cost us money. But we should switch because we’ll save money.

You’re getting this, right?

But hey, if we swallow the assumption (and advice from Government) that we will save money by switching then that’s awesome. You’ll knock 10 0r 15% off my bill? Yes? Awesome, because my last bill was a shocker. Terms and conditions? Yep, read all 279, 621 tiny little words of your terms and conditions after following ten links on your website (lie). Didn’t understand a word of (true). Yes, I’ll sign your contract because I’m Australian, you’re Australian and a deal is a deal. I’d spit and shake on it if you weren’t in Bangalore.

Now as it turns out, the totally awesome discount you just got is actually pretty “fluid”.  Turns out current laws allow the retailers to increase the price they charge you for electricity at any time during a contract.  But I hate switching, it’s a pain, so I’ll just lump it in 6 or 12 months when you hit me with a price rise caused by factors completely outside your control.

Wow, that wasn’t such a good deal after all.

The rules

Then there are the rules. My god, the rules.  Simply trying to understand the rules and regulations that govern the industry, how they translate to your bill and what they can and cant do is like trying to understand what your Optus phone is actually costing you. You have absolutely no hope.

Take business customers for example. I recently analysed 5 business bills, which were from different locations in Australia but all similar costs and by co-incidence, all from the same retailer.

Firstly, there was a a complete lack of consistency which made understanding and comparing them virtually impossible. Different terms for the same thing, slight changes in wording,some charges on energy, some on demand and an utter lack of consistency. In some cases customers paid for simply awesome things like “VIP Metering” and “Consumer advocacy”. Unreal. If I was a business owner, I would be so impressed to know that my retailer is charging me to be an advocate. For me. And then charging me. Now that’s service!

Then there is the complete and total transparency which allows me to compare commercial offerings. Yep, you can go to a web site, look at every offer in the market upload your consumption data and work out which offer is best.  And its easy (switching, remember?). Bullshit.

There is a chasm greater than the Western Australia’s Big Pit here.

First, if you want to know your demand profile, they’ll take weeks and probably charge you. For knowing. Your consumption.

Secondly, if you ask for an offer, they’ll pretty quickly slot you into a demand “band”. No one actually knows what these bands are or what they mean and they vary by region, by offer, by your size and the color of your neighbors hair (god help you if they are a blood-nut). It’s like a mystery flight; just shut up, sit down and hang on. If you don’t know your demand yet, don’t worry because they have a secret formula so they can tell you how much it will cost and what your profile will look like. Without knowing anything about your demand. At all.

But hey, I’m probably being unfairly critical because its complicated; I couldn’t possibly hope to understand. Go right ahead.

Then of course, you might have a relationship going back many, many years with your retailer. You watch the news, you’ve seen the drought, you listened to the issues about peak demand and the greatest moral issue of our time and you decided; Screw it. I’ll stump up hundreds of thousands of dollars of my own money and whack some solar up.

Your retailers reaction? Well at least one I know of said “Awesome!” “We’ll just renegotiate the contract you broke, your energy rate will dramatically reduce from 25c kWh to 5c. Your standing charges (don’t worry about them) will increase form 25c a day to $2  day”. For those unfamiliar, that’s called “the big switcheroo”, formerly the domain of dudes in weird waistcoats with cups and balls, but now a wholly owned subsidiary of electricity retailers.

Oh and because the rules have changed to protect consumers (enter the National Energy Customer Framework) , if you want solar, we will need to come and do a horrendously expensive study because  well, the fact that you have been on our network for thirty years and we approved everything counts for nothing. Because we have to protect you. In one actual case from a network operator one of the reason the gave for delaying a solar installation was, and I quote “The LV OH supply from the Council access track North of premises is quite sneaky visually and very hazardous to the unsuspecting. “

Damn it, sneaky wires. That’s a damn good reason to stop progress and infuriate a 30 year customer who’s (sneaky) installation was approved by you.You’re right. We are busted for excessive sneakiness.

I was also fascinated to see the variation in loss factors that are applied to bills, as  a separate and definable item. They varied between 0.1% and a staggering 15.19%. and are applied as a multiplier to the energy you consume. So in one case, the business bill I looked at was 15.9% higher than their actual consumption because the network is so grossly inefficient at delivering energy to their premises.   That’s akin to a mechanic saying “Sorry mate, I spilled 15.9% of the oil when I was doing your service because my pipe has a leak, but the law says I can charge you for it”. 

Not only are they allowed to do this by law, but they will charge you a huge proportion of your bill for building owning operating and maintaining that same network, then charge you (again) if they happen to do a lousy job of it where you happen to have your business. Really.

Then we can also consider the regulations around the pass through of the costs of RET. In NSW for example, Retailers were allowed (by the State regulator) to pass through the “full cost” of certificates at $40 and recover these costs from consumers and business. The catch here is the real price of certificates has moved from $16-$36 over the last few years and of course, if those same retailers create their own certificates (by selling you a solar system and capturing the STC’s) then they could get prices way down. So we know and it has been ackowledged by IPART that the Retailers stood to gain, potentially substantial sums from this quirk.

So in reality, the RET and the SRES in particular, has contributed to the profits of the Retailers.

I could go on with a myriad of other examples but I suspect you get my point.

The Government owns, regulates and controls the vast majority of the electricity industry in Australia all the way back to the coal reserves in some cases. The make a phenomenal amount of money from it, as do the non Government retailers and they don’t want it to change. The US based Edison Electric Institute (an electricity industry think tank) summed up the substantial concerns of their industry to disruptive challenges in blunt terms in a document released lat year, warning that industry had to adapt or perish. Through their vast media connections they will say what is politically convenient even if it is complete and utter rubbish and we wont even get a return phone call from the same reporters.

It seems to me that they have all got themselves into a corner so dark, they just have to keep rolling out the same rubbish and hope no one notices.

Guess what? We noticed.

 

 

Post expires at 10:38pm on Thursday February 19th, 2015

About the author

Nigel Morris
Nigel Morris

Nigel is the Director of SolarBusinessServices. After almost 20 years working for other companies SbS Director Nigel Morris, established the company in 2009 with a view to providing other organisations with the benefits of his wide experience in the renewable energy industry.

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21 Comments

  1. February 20, 2014

    Wow Nigel, I knew it was confusing but bloody hell thats ridiculous

  2. February 23, 2014

    Brilliant article Nigel! How can these facts go viral quickly. Would 60 Minutes run with it ?

    Thanks for everything you do for the industry

    Cheers Brett

  3. February 23, 2014

    Electricity revenues for some governments in Australia are one of the last if not the only remaining genuine business incomes they have. Solar power in a sunny country like ours is a real threat to that income. Having just returned from Spain I learned that the government there is now aggressively penalizing new solar power installation and their billing system is now based on a whopping 70% fixed charges ratio. Consumption there only contributes to 30% of billing. Bottom line is that the more broke a government becomes, the more they will lean on their state owned electricity businesses for revenues…..there is no escaping it …..until such time as battery storage is cost effective after which the game will change forever.

    • February 27, 2014

      It’s not just State owned enterprises. Victoria privatised the generation, networking and retail parts of the market and still the monopolised networking companies have gauging consumers and that is the major component of price rises. Whether demand rises or falls (falling since 2009/10) they put out the cap for more and governments fearing blackouts and a voter backlash sign off on the increases.

  4. February 23, 2014

    Confusing yes !!
    Yet we don’t see this in the general media Why?
    We also didn’t see much in the media that solar prevented the expected blackouts / load shedding during the recent heat wave in the southern states
    Keep up the good work

    • Nigel Morris
      February 24, 2014

      HI everyone

      Thanks for all your feedback.

      One of the big challenges is that the industry rules and regulations are astounding complex. Another is that there is a big “lag” in how these policies apply, when the effects are felt and when changes come into play.

      A classic example is the carbon price. Even despite the public promise to remove it and reduce electricity prices on July 1 (irrespective of whether it actually gets passed) this article, co-incidentally published today highlights the lag on just one issue, which could result in retailers getting an increase through based on the Carbon Price, even if it is miraculously removed.

      http://www.news.com.au/finance/carbon-tax-families-face-electricity-price-rise/story-e6frfm1i-1226835377481

      The mainstream media knows who butters its bread and unfortunately it isn’t the renewable industry hence the reason air time is very very limited for us.

      Despite all this, we have two huge advantages; we help reduce cost and people love solar

  5. February 23, 2014

    Nigel, well and good , however you are preaching to the converted. From my desk, a micro business on the demand side I can tell you its a buck passing well insulated bureaucracy and I dont suppose its much different on the supply side

  6. February 23, 2014

    Wow, like wow! I need to talk to you Nigel, something has to change, why can the public not have a choice and how do you change that

  7. February 24, 2014

    Well said Nigel. The solar industry is being shafted from all directions and the powers that be are making every effort to try and have a sympathetic ear from the public as they axe sound renewable programs. As industry members we need to make sure they don’t and that the public have the real facts.

    At the last RET review there was a coalition of organisations within the renewable sector that joined together specifically to argue the case for retention and indeed expansion of the RET. Another coalition of like minds is being reformed to fight the pre-programmed outcome of this review.

    Billing costs are a more difficult fight as they are state based and so we need to take the fight to multiple fronts. The starting point for pricing reviews is the Terms of Reference provided by the Government. This is the stage where we need change as once the review is underway with a stacked ToR it is as good as lost.

    If we want a viable solar industry in the future and a renewable energy base for our children’s future, we will all need to get on board. We need to ensure that our respective industry associations are taking the fight to the Government and hopefully there is enough independence in the media to get the message across as well.

    We have to tackle this at both a Federal level for the RET and a state level for the billing criteria as both these levels of Government are attempting to cripple the solar industry.

    More than anything else we need to be sending this information directly to customers and contacts on our data bases as in the end it is only a lost vote that makes a Government responsive to any change.

  8. February 24, 2014

    Your audition piece for Mad as Hell. You should play as yourself, since you’re probably one of the few who actually understand this stuff and has the energy to read the reports. Stay Mad as Hell !

    Are you going to the Battery talk tomorrow at AUSGRID?

  9. February 24, 2014

    None of this surprises me.
    Governments we can’t trust and corporate company’s putting profit before people etc, etc.
    The only shock is that the retailers who cry foul the most still sell solar and then complain it is killing their profits.
    In regard to the STC`s I personally will not be so sad to see them go.
    I think it’s time that the industry stands on its own and that way we will have more credibility in the eyes of the people that matter (Jo public).
    Sure jobs will be lost, I may even fall victim of this but I hate being beholden to a government and not knowing if the next day my livelihood and family`s home could be taken away by some legislation change that I didn’t foresee.

  10. February 25, 2014

    Go Nigel..!!!

  11. February 26, 2014

    and then.. when you think you’ve got a handle on how to reduce consumption Energex (electricity supplier for SE Qld) decides, without telling anyone, to make ‘off peak’ available 24/7 for 3 – 4 weeks as part of a ‘testing and maintenance’ program. (I had to email them and wait 3 days for a reply that confirms this.)
    More BS I think. It’s just a sneaky grab for more dollars as most people won’t notice that their off peak appliances are running on demand day and night.
    No one was advised of this and there is more ‘bill pain’ coming for those that have inadvertently used lots more ‘off peak’ power this month.
    It’s little surprise that more and more people want to go not just ‘off peak’ but OFF GRID – and I am one of them.

  12. February 26, 2014

    Nigel, channel 10′s ‘the project’ would be a good candidate to run with this story. They don’t appear to be so heavily influenced by politics. Maybe you should reach out yo them on twitter?

  13. February 27, 2014

    Nigel you mentioned Alcoa in this report. Are you aware that Alcoa Australia generate a considerate amount of their own Electricity to run their plants and never say anything. They have a contract with the Victorian Government to use state power grid to supply Portland Smelter from their own Power-stations. Further more the shutting down of those plants have been on the agenda for many years. the company’s (Alcoa) policy is, if the plants aren’t producing a profit shut them down. As they did in the USA and they will do the same with the Kwinana Alumina Refinery in the future due to it running at a loss. This has also been on the cards for many years. I have been to meetings where Alan Cransberg has stated this fact and also the closing of the rolling mills in the eastern states.
    The reason why they never said anything about the Carbon Tax is because Alcoa is exempt from it and in WA they used to produce 10% of the states electricity for or via Gas Turbines owned by Alinta Energy which they operate and maintain because Alcoa Refinery’s need steam to extract the Alumina from Bauxite. Therefore the Electricity produced in their own Power stations at each Refinery is a by product of the Refining process.

  14. April 05, 2014

    I am now seriously thinking of capturing as many mice I can and have them run on those little wheels, each having have a tiny generator attached. Seeing as mice tend to love those wheels employee satisfaction should high and costs low. Now all I need is find a stash of those old bicycle dynamos that once powered bicycle lights. Along with my existing solar system I should be totally off the grid.
    Bring on the next mouse plague.

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