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A recent article in the Climate Spectator suggests that the deception goes even deeper.
Tristan Edis asks the valid question - Why are prices continuing to rise when both peak and total demand is falling and has done so for the last few years?
The answer is in the Productivity Commissions final report.
They key part of the report according to Tristan is the below table.
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Energex (Qld based retailer) has the biggest spread (3%), and this is leveraged against a large asset base ($7.87 Billion). What this means is that Energex can charge prices which bring in an extra $1.2 Billion more than can be justified by their costs. That extra money is extracted through the power bills of the average Queensland consumer.
Tristan clearly explains that this:
provides a very strong incentive for (Energex) to inflate forecasts of electricity demand, which then enables (Energex) to increase (their) asset base. What’s more if it turns out that electricity demand wasn’t as high as (Energex) expected, (they) can pocket all those windfall gains and not actually even spend the money on building the new assets. Although that then means (Energex) forgo the revenue over the remaining life of the asset which in network businesses can be decades.
The bottom line is that the more Energex can increase its asset base (poles and wires), the more money they can extract through their 3% margin, the higher our power prices go, regardless of demand.
How that work's in Powerlink's case (the Qld poles and wire provider) is illustrated in the chart below.
Powerlink's return on capital is almost 70% (compared to Victorian providers where it is about 50%).
Tristan explains:
Now on top of the 1.12 per cent premium Powerlink pocketed on its debt, its shareholder – the Queensland government – picks up some further windfall gains. That’s because it borrows the money on behalf of Powerlink at rates considerably lower than the 6.98 per cent it charged Powerlink.
Powerlink may represent a greater debt risk than the Queensland government as a whole. But when it’s considered that the Queensland government has a pretty big say in the regulation of Powerlink, then the risk is probably pretty darn low.
At the same time the Queensland government sets the reliability standards which determine how many assets need to be built to meet the forecasted levels of electricity demand. High standards of reliability require more assets to cope with possible breakdowns.
For some strange reason the Queensland government in its infinite wisdom believes that Queenslanders need higher levels of reliability than Victorians. How does it know? Well it’s not actually based on any evidence, whereas in Victoria reliability standards are set based on publicly available assessments of the cost to consumers from a loss of supply.
In simple terms, the Newman government gets to double dip... they accept the profits that Powerlink make, and they get a further dividend on the money they loan Powerlink. The net effect is higher retail prices all because of the way that the Newman government manipulates the system (not based on transparent public assessments of need, like in Victoria).
There is a perverse incentive to inflate demand, provide too much electricity infrastructure, and as a result inflate prices and increase the burden on the average Queenslander. On the one hand the Newman government is doing all it can to keep power prices artificially high in order to swell government coffers, while playing politics with the issue of keeping prices under control.
Disgusting.
I highly recommend reading Tristan's full article.