Why are our power bills so high? We’re paying for mistakes of the past
Published at The Daily Telegraph, Monday 26 March
The cost of the electricity grid in NSW has almost doubled 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.
The 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 NSW — is worth $16 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 airconditioners 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, has found that NSW spent up to $11 billion more than it should have on the network. And all that extra infrastructure has been one of the main reasons our bills have grown so much.
If you live in central Sydney, excessive expenditure in the past is costing you more than $300 a year. If you live in the western suburbs, it is costing you a bit over $100 a year.
And if you live in regional NSW, you’re really copping it: you are paying a whopping $380 a year for government mistakes of the past.
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 we 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.
And yet this is effectively what has happened to electricity consumers in NSW.
Since the middle of last decade, the network businesses — at the time 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 state government — that insisted that the network be built to be extra-reliable.
In response to a couple of short but high-profile incidents and outages, politicians set very high reliability standards, particularly for the centre of Sydney.
But it’s hard to argue that consumers have been well served by this action.
For that extra $300 a year, a resident of central Sydney can expect to lose power once a year for 80 minutes, as opposed to a decade earlier, when they were losing power once a year for 90 minutes. Think of it this way: you’re paying $300 for 10 more minutes of electricity.
There is some good news: the rampant spending by networks finally appears to have slowed. The regulator has imposed tighter controls on spending, and the businesses appear to be changing their behaviour, possibly as a result of privatisation.
But the bad news is that we consumers still have to pay for all that extra grid — some of which didn’t need to be built, or at least didn’t need to be built as soon as it was and as big as it is. And the worse news is, it will take decades to pay them off.
The NSW government, as both the owner of the businesses at the time and the body responsible for imposing such high standards for network reliability, should compensate electricity consumers.
The government has just had a big payday for leasing those same network businesses. It should use some of that money to reduce your electricity bills.
But don’t hold your breath.
The government has already committed to spending the money on other infrastructure projects — roads, hospitals and the like.
Of course, that’s not necessarily a bad thing — we need roads and hospitals.
But let’s not kid ourselves: this decision comes at a cost. It locks in high electricity prices for the foreseeable future.
See that new freeway? That’s what you’re paying for every time you pay your electricity bill.