With interest rates climbing and inflation ballooning, the last thing those who are feeling the pain of the current financial squeeze need to hear is that energy companies have been ripping us off for much of the past decade.
But, according to a newly released report, that could be the case.
The report, commissioned by the Institute of Energy Economics and Financial Analysis, suggests that the Australia Energy Regulator (AER) approved charges to customers that allowed the networks to generate profits well in excess of ‘normal’.
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The report says the justifiable ‘normal’ level of profit from the investment was about $15 billion between 2014 and 2021. However, AER approved charges to customers that allowed the networks to generate a $25 billion profit.
Network companies in Queensland, NSW, Victoria, South Australia and Tasmania have been persistently charging too much and generating what he terms “supernormal profits”, meaning excessively high returns.
These supernormal profits “bear no relationship to network businesses’ level of productivity or enhanced performance and reliability,” the report says.
What’s wrong with making a profit?
The report notes there is no suggestion “that network businesses aren’t entitled to a decent profit”. The issue is that “returns are vastly in excess of what is required for network businesses to finance a reliable and safe network”.
Profits bear no relationship to network businesses’ level of productivity or enhanced performance and reliability.
“Essentially, consumers are paying nearly 11 per cent more than necessary to ensure [a] safe and reliable network service that delivers consumers no future benefit in enhanced services or potentially lower costs.”
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Perhaps unsurprisingly, the AER’s view of the energy market pricing landscape does not exactly align with the report. The regulator’s chair, Clare Savage, responded to the report’s release, saying she was disappointed that her organisation was not given enough time to review the report before it was published.
“Businesses can earn returns above the rate of return set by the regulator if they outperform the expenditure forecasts set by the regulator, or they provide demonstrated benefits to consumers,” she said.
But the report provides a counterargument that among other errors, which led the regulator to hand networks a 67 per cent higher profit than necessary, were what it describes as misjudgements that resulted in “incentive payments for average and even below average performance”.
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Australian power bills are expected to continue rising into the foreseeable future. Most consumers would be aghast if those allegations proved to be true. They would likely agree with the report’s recommendations for fixing the issues.
“The federal government should establish an independent commission of inquiry to assess how to restructure energy network regulation (inclusive of gas pipelines) to achieve better value for money for consumers.”
How much traction the report’s call gains remains to be seen. In the meantime, Aussies should probably brace themselves for further energy cost pain.
Have you been affected by rising energy prices? How do these findings make you feel? Why not share your experience and thoughts in the comments section below?