Electricity overhaul could slash bills

Updated

Household power bills could be slashed by up to $250 a year under a Productivity Commission plan to overhaul how the electricity market works.

The Commission's draft report found consumers are paying a significant amount of money just so the network can deal with peak demand - something that only happens for a short period of time.

It suggests household bills could be drastically reduced if demand-based pricing was introduced, because it would encourage consumers to cut back on electricity usage during times of peak demand.

"At the moment, 25 per cent of household power bills are due to having to cater for the peak demand that occurs for a very small period during each year - approximately 40 hours a year when typically we have extraordinary hot weather and people are running air conditioners flat out," Commissioner Philip Weickhardt told ABC radio's AM program.

"Ironically it is the poor and vulnerable consumers who typically would not have air conditioners who are cross-subsidising in a hidden way those people who are running their air conditioners at that time."

With demand-based pricing, consumers who use power at times of peak demand would contribute to the cost of providing that electricity.

The Commission estimates that critical peak pricing would provide savings worth between $100 and $250 per household each year.

The idea is one of several recommendations made in the Commission's 800-page draft report, which also backs Prime Minister Julia Gillard's argument that network upgrades have been a key driver of power price rises over recent years.

Ms Gillard opened a new battle with state premiers in August, urging them to curb the over-investment in what she described as "gold-plated" power networks.

She argued it was a "huge" cost to the Australian economy and had to stop.

The Commission says the current regime encourages power companies to build "too much" and billions of dollars could be saved if those incentives were removed.

"Electricity bills on average across the national electricity market have risen 50 per cent in real terms over the last five years," Mr Weickhardt said.

"That's a huge rise and most of that rise has been due to the networks."

But Opposition Leader Tony Abbott described it as a "myth" that Labor was interested in bringing power prices down.

"The whole purpose of the carbon tax is to raise the price of power," Mr Abbott said. "If the price doesn't go up, the carbon tax isn't working."

"This Government is deliberately pursuing a policy of putting prices up, that is the whole point of a carbon tax."

The Productivity Commission has also made the argument for the full privatisation of government-owned power networks in Queensland, New South Wales and Tasmania.

"While governments have a legitimate role in owning and operating many services in Australia, the rationale for state-ownership of electricity network businesses no longer holds," the report states.

The Commission says state-owned businesses are subject to extra government requirements that private sector firms are not, including higher pay rates and a need to provide greater protection to their workers from structural changes.

It has also questioned the decision by state-owned power companies to provide millions of dollars in community sponsorship, of a magnitude at odds with commercially-oriented firms.

"It is particularly hard to characterise such sponsorships as building a brand name to attract customers, since customers have no choice but to deal with them," the report states.

Topics: electricity-energy-and-utilities, government-and-politics, federal-government, federal---state-issues, house-and-home, canberra-2600, nsw, tas

First posted