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A guide to why electricity prices have soared

Photo: File

A guide to why electricity prices have soared

News Corp Australia

POWER prices have almost doubled in a decade, with warnings the bill shock will cost jobs.

"It's taken 10 years to arise and it will take a long time to unwind," Australian Competition and Consumer Commission chairman Rod Sims told a Brisbane forum this week.

A staggering one-third of consumers are unable to even identify their power plan and find it harder to shop around for energy deals than those for banks, insurance or mobile phones.

Here's our user-friendly guide to understanding the electricity conundrum:

1: The generator

Power bill pricing begins with the state's electricity generators. Most electricity that reaches your home is created by state-owned, coal-fired power stations.

This wholesale energy cost - the price of buying electricity from the power stations and other suppliers - is passed on by energy retailers and makes up at least a quarter of your bill.

The energy is traded like goods on the stockmarket.

Retailers compete in the National Electricity Market, an energy exchange spanning five states. Hundreds of traders working for the retailers sit glued to computer screens on "trading floors" crunching data at all hours for a good deal.

Traders for the generators are on the selling end, battling to get top dollar. The generators bid in the highly volatile "spot market", offering their energy to retailers.

Retailers shield themselves from price surges by locking in deals, but the rapidly fluctuating "spot price" inevitably trickles through to consumers.

The closure of several ageing coal-fired power stations this year sent market jitters that shot generation prices up by 20 per cent. There was also the giant leap in gas generation prices (they've tripled in as many years).

But critics blame skyrocketing prices in Queensland on a lack of competition rather than a supply scarcity.

Market concentration was increased under the former Bligh administration in 2011 when three state-owned power generators were merged into two. Generators Stanwell and CS Energy now control about two-thirds of the Queensland market.

Claims the generators were "gaming" the system surfaced as Queensland wholesale prices overtook all other states in the first five months of the year.

Critics seized on government forecasts of a $1.5 billion windfall from the generators this financial year - 110 per cent more than in 2015-16 - as evidence of profiteering. The Palaszczuk Government reacted by directing Stanwell to change its bidding practices. Prices fell by a quarter, but it only fuelled criticisms the state was wielding too much market power.

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2: The network

The biggest price driver is network charges. Making up half of power bills, the fees cover the cost of getting power to your door via the state's network of poles and wires.

The charges are recouped from Queenslanders by state-owned distributors Ergon, Energex and transmission company Powerlink in bills.

A revenue cap is set by a regulator every five years, dictating how much monopoly networks can spend on building and maintenance. Homeowners pick up the tab, even if the spend wasn't needed. It's like a diner being billed for a $100 wagyu steak even if they didn't eat it, because restaurateurs had to put it on the menu.

While networks were busy building, Queenslanders were installing rooftop solar. Demand fell, but high network fees were already locked in.

Mr Sims says the network "gold plating" was an "over-reaction" to power outages 14 years ago. The problem was compounded by network pricing rule relaxations "largely to maintain or boost government revenues with no or little concern as to affordability".

3: The retailer

The part of your bill where you pay for the electricity you actually use is the only area in which you have any control.

Deregulation of southeast retail prices in 2016 boosted competition, but higher wholesale prices threaten to wipe out any savings. There's still a "considerable concentration in the retailing of electricity", says the ACCC, with AGL, Origin and Energy Australia holding most of the market.

PAWN OF THE POWER PLAYERS

TED Sosangelis is feeling the shock of surging power prices - to himself and his customers.

Each day people struggling to pay debts, including power bills, come into his Gold Coast pawn shop to hock their valuables until payday.

While he admits he's not a battler like many of his customers, he works 60-hour weeks at his Cash Providers shop at Nerang to stay in business, as costs, especially power, rise.

Despite his best energy-saving efforts, including installing LED lights, his shop's latest quarterly power bill hit $1200, and $900 for his home.

"When I came to Australia from the US about 10 years ago, my energy bills were less than half of what they are now," he said. "They just seem to keep going up and up and up no matter what I do to conserve power. Where's it going to end?I think it's going to double again in the next five to eight years."

Mr Sosangelis said despite increasing competition in the electricity market, it was still controlled by a "handful" of retailers who were "all the same".

"It's still a kind of monopoly," he said. "They look after the big guys like Coles and Woolies with all kinds of deals but go after the little guys like us. The cost of living in Australia is so expensive because people don't complain enough about the prices. They just accept it."

PEANUT CRUNCH MEETS POWER CRUNCH

POWER price rises not only hit the family budget at the Connors household, they also have a ripple effect on community events such as the school fete.

Coorparoo mum Rachel Connors said big electricity bills were front of mind as she organised the fete for her children's school. She said running food vans and amusement rides meant the school could expect a bump in its power bill.

She said cost-of-living pressures had trickled down to the volunteers who helped bake cakes for the day. "It's crazy that people are thinking about the fact they have to put the oven on," she said.

The quarterly bill for the household, with Frances, 8, Mary, 6, and Joseph, 3, is $1100, but Mrs Connors said the average punter had no idea how to find a better deal. "Family budgets are being bombarded with rising premiums, rising quarterly bills. There's no reprieve."