Traditional fossil fuel energy companies have held a monopoly on the electricity sector for a long time and would like for the public to see the industry as too complex to comprehend, when the actual fact is, it’s as simple as can be!
Generators produce electricity which transmitted through steel towers allowing high-voltage wires which in turn connect to local substations, feeding power into the steel-level poles and wires which carry it directly into homes and businesses.
These steel towers are owned by transmission networks and the wires by distribution networks. Retailers such as Origin Energy and AGL are at the forefront; they calculate all the costs and then charge them to you, the consumer. Many retailers also own power generators, such as Origin, who has huge investments in gas and coal fire plants, though neither retailer nor government have much to do with the networks between them.
Energy companies hold ultimate power by monopolising regions
Every state and territory has networks that include one transmission company and various distribution ones. They are not competitors, rather “natural monopolies” servicing their designated areas.
NSW has TransGrid as its transmissions company and 3 distributions ones. These are all state-owned, as well as those in Queensland, Tasmania and the ACT. Whereas in South Australia and Victoria, the industry is privatised and the networks are run by both local and foreign energy companies.
Every 5 years, the distribution and transmission network utilities are granted an allowance to spend on both capital and operating costs by the federal energy regulator. All they have to do is to produce a spending proposal that is “reasonable” in its presentation and the onus is on the regulator to prove that it is not.
2009 was the year that poles and wires in New South Wales and Queensland were in desperate need of upgrades. The networks also needed billions to build brand new infrastructure to meet increasing demands. The trouble comes into play when it was found that these demands for billions were exaggerated and the drastic demand predicted by these utilities never actually materialised. The regulator nonetheless approved a colossal $45 billion to “spending.”
45 Billion in spending approved by Federal Energy Regulator
Why exaggerate to such a degree you may wonder? Well, the answer lies in the fact that the current system actually rewards these energy companies for spending as much as they can as the more they build the more they are paid.
It makes sense now as to why over the last few years, electricity prices have all but doubled, with the media never fully disclosing why. Since 2009, these network energy companies have spent the $45 billion allocated to them, resulting in one of the most expensive projects ever run by this country. The project is run unchecked and as a result, huge amounts of money is spent on unnecessary infrastructure and we end up paying for it all, with additional fees added on for good measure!
This is one of the biggest reasons why electricity prices have risen so sharply, as 51% of consumer’s electricity bills is financed towards network charges according to federal treasury. Carbon tax makes up 9% and the rest of the bill is divided between those utilities that generate electricity (20%) and the retailers that sell it (20%). Australia’s previous Renewable Energy Target was so minuscule, the Australian Energy Market Commission (AEMC) estimates it makes up only 5%.
The history of how we landed up in this position can be backdated to 2005, where the networks were then regulated by 13 independent bodies, who decided what to spend and how much to charge. This all changed when the Howard Government came into power, as the new federal body replaced all 13 independent ones.
What nobody mentioned though was the fact that in order for the Government to get all states on board, they allowed them to control the new body. “Many states owned the network businesses, and they didn’t want a federal regulator coming down too hard on them,” says Rod Sims, chairman of the ACCC. To avert that from happening, each state’s energy minister is now in charge of a separate and brand new body (AEMC) whose sole purpose was to write the rules for the regulator to enforce.
At this point in time, it’s not possible to understand which states wield the most power concerning the AEMC. The rules seem to be kinder towards state-owned networks, such as NSW who are one of the biggest over-spenders.
NSW network utilities were one of the very first to submit their 5 year spending proposals in 2008. NSW apparently see the highest demand followed by Queensland according to data collected by NEMMCO. The strange irony of this data is the fact that NEMMCO used those stats collected by the networks themselves, instead of producing its own data.
AEMC claims for increasing electricity demand found to be false
This claim for the rising energy demand was not only made by the networks alone; politicians and even journalists throughout the country perpetuated that idea. We now know that this theory was completely false and baseless, as demand reached a peak in 2008 already and has been decreasing every year thus far.
The energy companies are unapologetic, and continue to rake in colossal profits. They still maintain that demand is growing and are putting on great pressure again for the need of new infrastructure. Analysts have put it that half the money spent by these networks was on unnecessary infrastructure.
One of the benefits of this energy companies power struggle in Australia is the fact that more and more people are starting to realise the benefits of using renewable energy such as solar power. This is an economically smart choice, especially for those who simply cannot afford the tariffs imposed by the networks.
With solar power, 60% can be saved on electricity bills and more than 1.2 million households already have installed panels over the past 6 years. As more people are switching to solar power, they use less from the grid, which means the networks have to recover their costs from a smaller base.
Therefore, these networks have started campaigning in order to increase their fixed charges, and if they win, even those who use less electricity from the grid will not be able to avoid the high costs imposed.
The power imbalance between energy companies and consumers is no longer as one-sided as it once was, with consumers gaining the ability to break free from an increasingly expensive grid by the saving grace of rooftop solar power.
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