Extraordinary profits –  for some – in power supply game

Guess who pays for extraordinary profits in electricity supply game


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In several states consumers are likely to be paying dearly for exceptional profits reaped by power network operators.

In several states consumers are likely to be paying dearly for exceptional profits reaped by power network operators.

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Some state-owned electricity suppliers are making more money than leading companies listed on the ASX

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Your spiralling electricity bill is due to many factors, including recent power plant closures, gas shortages and ageing generation plants, but in several states there’s a fair chance consumers also pay dearly for huge profits reaped by power network operators.

Possibly the best example is Queensland where state government-owned monopoly electricity suppliers, Powerlink, Energex and Ergon Energy rake in returns well above those achieved by leading companies listed on the Australian Securities Exchange (ASX).

For example, in the past 15 years the state’s ownership stake in Powerlink has realised rises in shareholder equity value and dividend returns worth 23 times more than those achieved by blue chip construction company, Lend Lease, and 10.5 times more than minerals and resources giant, BHP Billiton.

Powerlink also pays the government’s extra debt fees for money it borrows via Treasury, plus tax equivalent payments, and income from equity extractions relating to its regulatory asset base (RAB) valuation.

While claims of excessive profits and over-investment (“gold plating”) are also notable for networks in NSW, Tasmania and Western Australia, the Queensland government’s unusually profitable ties have apparently reaped as much as $12 billion from its power networks in the past three years alone.

Interestingly, the government does not actually commit to any real equity stake in these businesses – their funding effectively relies entirely on debt finance.

Submissions to the Australian Competition and Consumer Commission’s (ACCC) electricity supply and price inquiry noted network charges were responsible for more than 95 per cent of the total increase in Queensland power prices between 2004-05 and 2013-14.

They now contributed to more than half a consumer’s power bill, compared with 20pc 12 years ago.

According to energy analyst, Hugh Grant, key drivers for excessive network prices Australia-wide included excessive profit taking; excessive guaranteed returns to state governments on their RAB valuation of poles and wires businesses; over investment in network infrastructure (prompted by national incentives encouraging investment); excessive operational spending, and “gaming” the Australian Energy Regulator’s power supply incentive schemes.

Energy analyst, Hugh Grant, ResponseAbility.

Energy analyst, Hugh Grant, ResponseAbility.

Mr Grant noted in his ACCC submission all state-owned electricity monopolies received guaranteed returns on their regulatory valuations (RAB), but Queensland network RABs had grown at much higher rates than those in other states.

In the most recent regulatory period its three networks’ returns on their RABs accounted for about 75pc of revenue allowances achieved.

Mr Grant said Queensland’s over-investment in its power networks had followed consistent and significant over-forecasting of the demand load expected on the supply system.

Over-forecasting was a problem in other states, too.

For example, between 2007 and 2012 Queensland projected almost 1200 megawatts more in peak demand than was actually required, while NSW forecast about 700mW more than it needed, and Victoria 300mW more.  

The story Extraordinary profits –  for some – in power supply game first appeared on Farm Online.

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