The Australian Industries Energy Taskforce, a group of peak agricultural organisations of which the Queensland Farmers’ Federation (QFF) is a member, has released a scathing independent report again highlighting a broken energy system.
The report undertaken by the Sapere Research Group showed profits made by electricity networks are more than $2.6 billion higher than they should be according to the Australian Energy Regulator’s (AER) rate of return guideline.
QFF President Stuart Armitage said increased energy prices have placed enormous strain on business viability for farmers and the current situation is unsustainable.
“The research shows the AER’s rate of return data strongly implies the method used to determine the allowed rate of return, as proposed in the Draft 2018 Rate of Return Guideline, materially over-estimates the systematic risk exposure of the networks and breaches the rate of return objective in the National Electricity Rules,” Mr Armitage said.
“Network prices represent around half of a typical retail bill. The rate of return represents the largest part of the network component of retail bills. If actual returns exceed allowed returns, then retail prices would not reflect efficient network costs and bills will be less affordable.”
“The rate of return guideline uses a theoretical model to estimate the risk exposure of the regulated firms, based on a very limited sample. A significant limitation of this model is that it does not refer to any data on actual returns.”
“The bill impact based on the proposed rate of return methodology calculated in the Sapere Report is significant, adding perhaps 3-5 per cent to the typical retail bill. For an irrigator currently paying $30,000 p.a. for electricity, the excess network component in retail prices would mean they will have to unjustifiably pay another $1,500 per year.”
QFF is calling for immediate action and policy change from government and regulators to address the growing issue of electricity affordability and protect consumers’ best interests.
“The rate of return the AER allows the networks to earn should be economically efficient and based on real-world data from Australia and other comparable countries. It should not be based on a theoretical model that overstates the risk and the cost of finance,” Mr Armitage said.
“QFF supports undertaking further work to determine a more appropriate rate of return methodology before the draft guideline is finalised and calls on the AER to require regular reporting of actual returns by all network businesses.”
“If action is not taken, unsustainable electricity price increases and lagging productivity will result in more expensive food and fibre and a loss of international competitiveness.”