Enquiry urgently needed into South Australian Electricity Prices

South Australia electricity prices are a joke. I am over in America at the moment and power prices in most of the states of America range from 8 cents in most of the North East states to a maximum of 15 cents in California.

Peak power prices in South Australia are around 37 cents and these costs are putting undue burden on the old and people on lower incomes. My Dad told me that some pensioners he knows on the Yorke Peninsula are now turning off their fridges and buying only canned and long life foods. This is a disgrace. It is a failure of public policy both initially with the Liberal Government privatising our electricity assets and with the Labour government of the last 10 years doing nothing to reign in the price increases.

Only about 1-2 cents of the power price relates to solar feed in tariffs, the other 35 cents is made up mainly of the costs that SA Power Networks is allowed to charge for maintaining the grid.

There is also obviously the cost paid the the generator, about 8 cents and a few cents of retailer margin.

But there really needs to be an enquiry into the price charged by SA Power Networks to run the grid. It may be their costs are reasonable but it may be that they are not.

The first thing I would look into whether they are paying excessive management fees or inflated procurement costs to parent or related entities and if these are being included in their costs of running the network.

I know that with the solar power equipment we buy the growth of Chinese manufacturing has seen prices plummet for equipment. Why hasn’t this been the same with things like transformers that SA Power Networks buys to maintain the networks. When you think about it a company like this could make double profit if its parent company in Hong Kong bought a transformer for $1000 and then sold it to SA Power Networks for $2000, then they would as a consolidated group be making out like bandits because the SA Government, when working out the costs they can charge would allow them to make a return on an Opex of $2,000 rather than $1,000. I am not saying this is going on, I dont know, but what annoys me is that it probably isn’t even illegal if it is going on. With Commonwealth income tax law there are transfer pricing provisions which stop people transferring profits overseas, but I wouldn’t mind betting that the SA government hasn’t set up similar provisions in the electricity pricing laws to ensure that the cost of equipment or services provided by a related entity are not over inflated.

The second thing that an enquiry should investigate is whether those government employees responsible for setting prices and evaluating the capex and opex claims of SA Power Networks for running the grid are appropriately skilled to read through the manoverings of sophisticated multi-national corporate groups. I expect they aren’t. I think a review should be commissioned by some gnarly investment bankers and we should let the investment bankers keep half the savings in the first year on any rorting they discover. This way it would be investigated aggressively. Again I am not claiming there is rorting going on just that we should investigate thoroughly to ensure there is not

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Kind Regards

Andy