Heat is on to stop surge in Queensland power bills

by David Blowers

Published by The Courier Mail, Wednesday 28 March

THE cost of the electricity grid in Queensland has gone up by 75 per cent in a decade – and we’re all paying for it through our power bills.

Under successive state governments, more and more money has been spent on building network infrastructure. Trouble is, it’s not clear what benefit consumers are getting from the excessive spending on a bigger network.

The grid – the assortment of poles, wires and substations that transport electricity around Queensland – is worth $13 billion more now than it was 10 years ago, even after allowing for the effects of inflation.

Sure, some of that extra infrastructure was needed to meet growing demand. The population has grown and, although we don’t use much more electricity than we used to, we are using it differently.

Lots more households are switching on their air conditioners on very hot days, all at the same time.

These higher “peaks” of electricity consumption require a bigger grid. But how much bigger?

A new Grattan Institute report, Down to the wire: a sustainable electricity network for Australia, finds that Queensland has spent up to $7 billion more than it should have on the network. And that extra infrastructure has been one of the reasons our bills have grown so much.

Depending on where you live in Queensland, excessive expenditure in the past is costing the consumer between $250 and $300 a year.

Paying for electricity network infrastructure is a bit like paying off a home mortgage. The total value of the infrastructure – all those poles and wires – is the unpaid balance of the mortgage. Every year, electricity consumers make a mortgage repayment – paying a bit off the balance and a bit in interest – to the network businesses. The problem is that more and more has been borrowed to make improvements and extensions to the network, and consumers are now struggling to make the repayments.

And this is where the analogy with a home mortgage ends. Because, to the best of my knowledge, no bank forces you to borrow more money to improve your home. Yet this is effectively what has happened to electricity consumers in Queensland.

Since the middle of last decade, the network businesses – owned by the State Government – just kept building new infrastructure. To be fair, in part they were responding to new regulations – again set by the Government – that insisted the network be built to be extra-reliable.

In response to some high-profile blackouts, politicians set very high reliability standards. But it’s hard to argue that consumers have been well served by this action. It is true that before those high-profile blackouts, there’d been a reduction in spending on network infrastructure. But at the time of the blackouts, Brisbane residents had as much, if not more grid infrastructure than residents in other Australian cities. Nor was the grid particularly old and in need of replacing. It is hard to see how building even more infrastructure was the answer to the problem.

However, the good news is the rampant spending by networks has slowed. The regulator has imposed tighter controls on spending, and the businesses appear to be asking for less money to build poles and wires.

But the bad news is that consumers still have to pay for those extra poles and wires – some of which didn’t need to be built, or at least didn’t need to be built as soon as they were and as big as they are. And it gets worse – it will take decades to pay them off. The Queensland Government, as both the owner of the businesses and the body responsible for imposing such high standards for network reliability, should write down the value of the network by up to $7 billion dollars.

This would mean that consumers would no longer be paying for all that extra grid we didn’t need.

If a writedown is unpalatable, there are other ways the Government can achieve the same outcome – with lower, fairer electricity bills. The Government can, for example, give you a rebate: basically, take the revenue it gets from owning the networks and give it straight back to electricity consumers.

To be fair, politicians on both sides acknowledge the problem and are trying to address it. You will soon receive a $50 rebate on your electricity bill. This is your dividend from the earnings made by Government-owned electricity businesses, including the networks. And the Opposition went to the last state election promising to writedown
$2 billion of network assets, reducing bills by $100.

The Government is finally giving something back. But the size of our electricity bills shows a lot more needs to be done.