What’s really happening with electricity prices?

By tbreditorial

By TCCI CEO Michael Bailey

TCCI CEO Michael Bailey

Lately, it seems like you can’t open a newspaper or watch the news without there being a report about electricity.

Stories about how Australia has gone from having an abundance of low cost, reliable electricity to having some of the most unreliable and expensive power in the world.

But read and listen carefully and you’ll notice that a lot of those stories are written by interstate journalists and reflect what’s happening on mainland Australia – not here in Tasmania.

There are about 38,000 small businesses, 1,000 large commercial enterprises and a small number of industrial customers in all parts of the Tasmania that rely on the electricity delivered by TasNetworks to energise their operations.

In the lead-up to the recent State Election, the Minister for Energy promised that by 2022 Tasmania would have the lowest regulated power prices in Australia. The Government’s Energy Strategy also talks about restoring Tasmania’s energy advantage, and energy as a key economic driver for Tasmania.

A key part of delivering those outcomes falls to TasNetworks, the Government owned business that owns and operates the State’s electricity grid.

Network charges typically make up around 45 per cent of the typical household and small business’ electricity bill. And because network assets have operating lives measured in decades, anything TasNetworks can do to reduce what it spends on the network – without compromising its reliability or safety – can reduce the pressure on power prices for years to come.

TasNetworks submitted its plans for the five year plan for 1 July 2019 to 30 June 2024, to the Australian Energy Regulator (AER) in January 2018.

Unlike the usual arrangements in other states, TasNetworks owns and operates both the distribution network (the poles and wires) and transmission network (the large towers and lines) in Tasmania. The business was created through a merger of Aurora Energy Distribution and Transend Networks in 2014.

TasNetworks’ submission to the AER is the first combined transmission and distribution 5-year plan to be presented to the AER. It affords the chance to realise the savings and efficiencies that only a single business responsible for both networks could achieve.

In this context, TasNetworks 5-year plan sets out their expenditure plans, revenue requirements and prices for the period from 2019 to 2024. TasNetworks sought the input of customers throughout the development of their plans, including the TCCI and a range of other business and community stakeholders.

The clear and consistent message from customers was that service and reliability levels are generally acceptable with affordability the primary concern.
TasNetworks’ 5-year plan appears to demonstrate a balance between maintaining a safe and reliable network, innovation to support the changing way customers are using (and generating) electricity, as well as the delivery of the lowest possible sustainable prices for customers.

The 5-year plan also sees a significant reduction in revenue when compared with the revenue requirements of the two preceding network businesses.
The submission features planned reductions in capital expenditure and operating expenditure, and a proposal to the AER to align the rate of return on their transmission assets with the lower rate of return for the distribution network.

In order to achieve the forecasts presented in their plan TasNetworks will need to deliver additional efficiency gains, over and above those achieved since the two businesses came together.

Noting that TasNetworks is coming off a base of around 20% reductions in network charges in 2017-18. If the AER accepts TasNetworks’ proposal, it will mean that for most business customers, network charges will return to 2009-10 levels and then increase at a rate only slightly above CPI.

Indicative average annual network charge (June 2019 $m)