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Essential Energy accused of pushing for 25% price gouge

By October 3, 2017 No Comments

NSW government-owned Essential Energy has been accused of price gouging by seeking a 25% increase in electricity rates for rural customers, even though an internal document shows that leaving them unchanged would have “minimal impact on the business”.

The racket was uncovered by the opposition energy spokesman Adam Searle, who unearthed the documents through the Freedom of Information Act.

He said Essential’s tactics were scandalous. The company, which supplies electricity to about 88,000 rural homes and businesses is fighting in the courts to reverse a price determined by the Australian Energy Regulator in 2015. If it wins, power prices for its rural customers could rise by 25 percent or $313 a household per year.

 

Essential Energy warns of bushfire and blackout risks if prices are not raised

Essential has warned publicly and in court submissions that its customers risk bushfires and blackouts if prices are not raised to the levels it demands.

The Australian Competition and Consumer Commission says gouging by network firms is a bigger cause of electricity price rises than the gas shortage or the rise of renewables.

The ACCC said that price gouging practices account for 41 percent of price rises in the past decade.

A Senate inquiry will hold a hearing Tuesday, October 4 on a Federal government proposal to restrict the ability of the 20 monopoly electricity distribution and transmission companies to overturn AER pricing decisions in the courts.

Opposition Energy Spokesman Adam Searle

Opposition Energy Spokesman Adam Searle

Quoted in the Australian Financial Review, Mr Searle said: “Essential claimed that if its appeal against the original AER decision to cut household and business electricity prices was not allowed, the safety, security and reliability of the network service would be compromised – it would have difficulty maintaining services, would have to make mass sackings of staff, and communities would be put at risk of potentially catastrophic consequences such as bushfires.”

He said that according to the internal document dated May 17: “Essential could live within the original AER decision. Despite this, the electricity company will now take nearly $2 billion more from its customers and it is still sacking another 600 workers.”

Essential, and two other NSW electricity distribution networks, Ausgrid and Endeavour, have spent two years fighting the AER’s decision for price cuts in the period from 2014 to 2019. The AER said the lower prices reflected the efficient best-practice costs of running the grid.

The May 17 note was written ahead of the appeal judgement  and stated that if it won the case it would “result in increased network charges.”

 

Essential Energy would feel “minimal impact” if prices were left unchanged

But if it were to lose the case and could not raise prices, it would have a “minimal impact” on its business”. It said it had already achieved the 30 percent cut in operating expenditure and the big reduction in its debt payment and capital costs mandated by the AER.

“The program of reform already implemented by Essential Energy has delivered sufficient adjustments to enable the business to operate within the capital and operating expenditure allowances of that (AER) determination. The impact of this outcome on the business today would be minimal.”

That assessment contrasts with what Essential claimed to the Federal Court 18 months earlier. It said that the AER’s decision to cut to its revenue was “glib and superficial” and would “compromise the safety, security and reliability of the network service.”

Essential Energy told the Australian Financial Review that it was being truthful when it told the courts that the cuts could compromise its business but its warnings turned out not to be true. “A significant transformation and cost reduction exercise was immediately embarked upon that, while successfully implemented over a reasonable timeframe, involved considerable risks and unknowns.”

“This included a substantial reduction in Essential Energy’s workforce from more than 4,700 in 2012 to 3,200 at 30 June 2016 which was undertaken despite an Enterprise Agreement without forced redundancy provisions and significant opposition from unions, local communities and regional parliamentary representatives.”

“The emergence of several technological innovations in the energy industry, such as LiDAR (Light Detection and Ranging) inspections, drones and iPads, has also enabled further business operating efficiencies since 2015.”

In the briefing note in May 2017, however, Essential Energy tells the NSW government that even though all the cuts had already been implemented if it lost the case in the Federal Court it would still issue a threatening press release.

Essential says it plans to issue a press release warning it was “critically aware of the potential impact this decision could have on regional and rural communities.”

Essential has not named a figure for how much it expects to raise prices in the wake of the decision. Ausgrid estimated prices could rise $11 a year for the next five years or a total of $55 as a result of the Federal Court decision but consumer groups say Ausgrid’s claims in court imply the final increase could be as high as $100 a year. The AER has warned that the decision could have a “cascading effect” on other electricity networks in Victoria and SA which are also challenging its decisions.

 

Senate to decide whether appeals can only be filed on narrow grounds

The Senate hearing will look at whether the Australian Competition Tribunal, a division of the Federal court, should be stripped of the power to overturn all decisions taken by the Australian Energy Regulator. The proposed changes would mean that appeals will only be available to the full Federal Court on narrow legal grounds. The proposal to limits appeals has the backing of all the states except NSW which still owns 51 percent of its electricity network and earns hundreds of millions of dollars in dividends.

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