Lenore Taylor SMH
March 30, 2011

SOARING NSW power bills are partly due to flawed government regulation that encourages massive over-investment in towers and wires and pays inflated returns to state-owned electricity transmission and distribution companies, a report has found.

The federal government’s expert climate adviser, Ross Garnaut, says there is a strong prima facie case that regulation of energy transmission and distribution, overseen by federal and state ministers and enforced by the Australian Energy Regulator, is forcing unnecessary price rises on households, and the problem is most acute in states such as NSW where the three network businesses remain state-owned.

He recommends an immediate review, particularly since the huge price rises over the past five years and those in the pipeline are making it harder to win public acceptance for the smaller rises that would flow from a carbon tax.

'On the face of it there is a case to answer, because high rates of return are allowed and … that has introduced an enormous incentive for over-investment and the cost of those high levels of investment and the high rates of return are passed straight on to the electricity consumers,' Professor Garnaut said, saying the rules almost required the energy regulator to allow price gouging.

The chief executive of the Energy Users’ Association, Roman Domanski, said Professor Garnaut's analysis was 'spot on'. He said the doubling of network charges between last year and 2015 was the primary driver of consumer price increases and had been mainly caused by a 'poor regulatory structure' and not by the often cited need to replace ageing infrastructure.

Mr Domanski said the three network businesses had returned about $15 billion to the state government over 10 years through special dividends and 'tax equivalent' payments.

But the head of the Energy Supply Association, Brad Page, said Professor Garnaut was 'drifting into an extremely complex policy area that has nothing to do with climate change'.

The Energy Networks Association said Professor Garnaut was making assertions about rates of return while 'ignoring that these very issues are debated and examined by experts through regulatory processes'.

Professor Garnaut has stuck with his argument that electricity generators deserve no compensation through free permits for the introduction of a carbon price – a stance the Rudd government rejected and the Gillard government is also likely to.

But he argued the government could make sure the new tax had no effect on energy security by offering limited 'loan guarantees'.

[Original SMH Article no longer available].

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