Report lays bill blame

FOR many it’s a monthly ritual – checking the mail only to be greeted by an electricity bill which seems to be higher than the last.

While many wouldn’t need to be told that their power bill is on a constant upward trajectory, a new report released by the Grattan Institute has identified a culprit – and it may not be who you suspect.

The report, ‘Price Shock’ by researchers Tony Wood and David Blowers, has blamed energy retailers’ high profit margins for increases in power prices, which have almost doubled during the last decade.

In their work, Mr Wood and Mr Blowers found this increase occurred despite wholesale power prices – the price charged by generation and transmission companies for producing electricity – remaining steady.

“While wholesale prices have been volatile, with prices in 2006-07 as high as $76 a megawatt hour, the long-term trend has been fairly flat to date,” the report said.

“There is certainly no trend that could explain the marked increase in retail price from 2005.

“In fact, over the past five years, wholesale prices in Victoria have been among the lowest of all jurisdictions.”

The researchers also looked at the impact of smart metre installations, government policies such as the carbon tax and renewable energy subsidies but found green schemes only accounted for seven per cent of Victorian power bills.

“It is hard to argue that Victoria’s high electricity prices are down to government interventions,” the report said.

Instead, Mr Wood and Mr Blowers, placed the blame for higher costs with electricity retailers – the independent companies which charge customers for their usage on behalf of the generators and transmission companies and send customers their bills.

“The profit margins of electricity retailers in Victoria appear excessively high and have been rising without apparent justification,” the report said.

“Although retailers fulfil an important role in delivering electricity to consumers, our analysis suggests at least a 13 per cent mark-up that is hard to justify when other forms of retail business earn substantially less.”

Despite competition generally leading to lower costs as companies vie for customers, the report argued competition can increase some costs.

The report found retailer charges made up about 30 per cent of the total bill – $935 million in real terms, which the report estimated would translate to about $400 million in profit.

“This is a much larger profit margin than in other industries,” it said.

“If profits in the retail electricity sector were equivalent to those in other retail sectors, Victorian electricity retailers would make only about $150 million a year in profit, rather than about $400 million.”