Electricity company’s plan to push up prices

NSW Irrigators' Council (NSWIC) economic policy analyst, Stefanie Schulte, has said Essential Energy’s request would lead to higher electricity prices if approved. Ms Schulte said Essential Energy has asked the AER for overall revenue of more than $6.7 billion for the period, of which more than 40 per cent ($2.8 billion) would be solely for further capital expenditure.

“Should the regulatory proposal be passed in its current form, it will most certainly cripple the irrigation industry in NSW,” Ms Schulte said. 

“In addition, the network seeks a rate of return of 8.83 per cent, more than triple the current cash rate of 2.5 per cent and more than double the 10-year government bond rate of 3.4 per cent.”

She said the increase to individual irrigators could be anything between a couple of per cent to beyond eight per cent. 

“It would probably reflect through to domestic users to some degree, because network charges are also incorporated into households and business costs. It depends on the final decision of the AER,” she said.

Essential Energy’s regional manager, Ben Williams, said the proposal is to increase its share of electricity charges by 2.3 per cent or about $30 per year for the average household.

“If accepted by the AER, this will mean that network electricity prices would increase at 0.2 per cent below the rate of inflation,” Mr Williams said.

“The amount of revenue Essential Energy can recover from customers depends on how the AER calculates the rate of return on our investment in the network. "The rate of return determines how much of our plans we can deliver while allowing a responsible return to the NSW Government to support other services, such as schools and hospitals.

“The 8.83 per cent is the cost at which we gain funds to invest in revenue-generating assets. Essential Energy doesn't borrow at the cash rate. Our cost of debt is actually much higher than 2.5 per cent.”

Essential Energy is not alone when it comes to high costs.

“We’ve conducted a trial where we found between 55 and 65 per cent of their electricity bills are made up of network charges,” Ms Schulte said. 

Essential Energy’s submission to the AER conceded electricity usage was falling. 

“We expect, on average, our customers will continue to reduce their use of electricity by an average of 0.4 per cent per annum over the five years commencing 1 July 2014,” it read. 

The drop was attributed to the continued take-up of domestic solar panels, the high Australian dollar’s impact on Australian manufacturing and the impact of electricity charge increases from July 2009 to July 2012 on customers’ energy usage, and Ms Schulte said alternative sources of energy were worthwhile considering.

“It’s one of the options that should be explored further, given the rising costs,’ she said. 

“We’ve just seen over the last five years, effectively for the irrigation industry, prices have increased up to 300 per cent for some users. So they’re looking at all sorts of possible alternatives, and also operations on-farm to see whether there are some efficiencies to be had there as well.”