Fair pricing for power - Grattan Institute

Fair pricing for power

by Tony Wood

06.07.2014 report

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Reform of electricity tariffs is urgently needed to prevent all Australians paying too much for power and some people paying more than their fair share.

Fair pricing for power finds that a different way of charging customers could have saved network businesses nearly $8 billion in reduced investment over five years, with the savings passed onto consumers as lower bills.

Over the five years to 2013 the average Australian power bill increased by 70 per cent, when inflation increased by only 12 per cent. Some of that burden is unfair, and is falling especially heavily on some power consumers, whose bills are subsidising others.

The report recommends a change to the way consumers pay for the network that carries electricity from generators to homes, so that it better reflects the cost of running the network.

Instead of charging a household based on its total energy use, the 43 per cent of the consumer bill that goes to fund the network should be based on the load the household puts on the network in the times when it is drawing down most power. Calculating bills based on a household’s maximum load far better reflects the real cost of running the network. If this cost can be reduced, so can consumer prices.

A second tariff is recommended for households in geographic areas where the network is under greatest strain and where expensive new infrastructure will have to be built unless the strain is relieved. Both tariffs seek to change consumer behaviour so that less power is used in periods of peak demand and less infrastructure has to be built as a result.

The reforms would raise prices for consumers who use more power in periods of peak demand, and reduce them for consumers who use less power in these times. In the short term the total consumer bill would stay the same, but in the long run, as unnecessary infrastructure is no longer built, prices across the board will fall.

Australians are tired of paying too much for power. If politicians decide this reform is too hard, they will miss an opportunity to make prices fairer and cheaper for everyone.

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