Key Findings
The recent draft default market offer (DMO) affecting New South Wales, South East Queensland and South Australia, and the Victorian default offer (VDO), indicate that consumers will be facing electricity price rises.
Some 15–33% of the recent DMO and VDO draft residential retail bill rises could be avoided if monopoly electricity networks were no longer allowed to extract supernormal profits.
The Australian government should work with state governments to reduce supernormal electricity network profits, to ease the upward pressure on electricity bills.
Executive Summary
This report estimates how much of the recently announced retail electricity default offer bill rises could be avoided by removing supernormal electricity network profits, which were identified in an October 2022 IEEFA report, Regulated Electricity Network Prices Are Higher than Necessary.
The Australian Energy Regulator (AER) recently released its draft decision on default regulated electricity prices for 2023–24 proposing that residential prices in South East Queensland, New South Wales (NSW) and South Australia are to increase. Similarly, the Essential Services Commission of Victoria released its draft decision on default regulated electricity prices in Victoria proposing that residential prices in Victoria increase.
In February 2023, the AER handed down a decision allowing monopoly networks to continue to extract monopoly profits, contributing to energy price rises exceeding economy-wide inflation.
Between 15% and 33% of the proposed residential retail annual bill increases ($67 and $166 per customer), could be avoided if monopoly networks in South East Queensland, NSW, South Australia and Victoria (excluding regional NSW served by Essential Energy, and CitiPower in Victoria) were no longer allowed to extract supernormal profits. However, in February 2023, the AER handed down a decision allowing monopoly networks to continue to extract monopoly profits, contributing to energy price rises exceeding economy-wide inflation.
The federal government should work with National Energy Market jurisdictions to stem supernormal network profits from 1 July 2023. Governments could overwrite the AER’s recent rate of return decision to correct errors in estimating debt financing costs, currently resulting in more than half of all network supernormal profits extracted.
