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Electricity users overcharged by $3 billion

NSW consumers are fuming as electricity prices have increased by 80% over the past 5 years. The average household bill is expected to reach $2,230 this year, compared to $1,100 in 2007-8, according to the Australian Financial Review.

Australian Consumer and Competition Commission chairman, Rod Sims has also weighed into the debate, suggesting users are being overcharged as much as $3 billion, due to the poor way the industry has been run.

A recent senate inquiry into electricity prices has found that energy companies have built up the grid to cater for energy use during peak times, and those costs are being passed on to consumers, while the NSW electricity companies profits rose $100 million to $1.2 billion in 2011-12. An additional $17 billion is expected to be spent on poles and wires from 2009 to June 2014, despite households reducing their usage due to the increased prices.

Brisbane-based ERM Power (ASX: EPW) recently arranged additional financing to underpin further expansion and development of electricity generation assets and expects to raise revenues from $1 billion to $1.4 billion.

Excessive overtime is also a significant cost to electricity distributors. More than 1 million hours of overtime was paid last financial year, including one worker who received $180,000 – nearly twice their annual salary. An Auditor-General’s report also found that more than 1000 employees received over 50% of their salaries in overtime.

In other states, Queensland government reforms look set to increase electricity prices, with fixed charges set to soar, in return for lower variable cents per kilowatt rates, according to the Courier-Mail. Melbournians aren’t off the hook either, with City West Water, Yarra Valley Water and South East Water likely to increase water bills by an average of 34% next financial year – to cover the cost of the Wonthaggi desalination plant, according to ABC News. It should be note that the changes are yet to be approved by Victoria’s Essential Services Commission.

Two weeks ago, AGL Energy (ASX: AGK) claimed it would pull out of South Australia, because the state regulator decided to adjust retail tariffs to be more in line with wholesale electricity market prices, while Origin Energy (ASX: ORG) has made similar complaints in Queensland.

The Foolish bottom line

An alliance of business, community and consumer groups has suggested that a way to cut energy bills would be to pay users for reducing their electricity use during peak periods, and announced measures to encourage companies to curb excessive spending on poles and wires. Consumers will be hoping the government takes these suggestions on board – otherwise we could see electricity prices continue to sky-rocket.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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