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QLD households face electricity price hike

Having just seen a 22.6% hike in electricity prices, Queensland consumers face a 14% rise from July next year. The rise is expected to add an additional $270 to the average household bill.

Should the carbon tax be repealed, the increase could be as low as 5.4%.

Around one-third of the increase can be directly attributed to rising costs of generating electricity, according to the Queensland Competition Authority (QCA). Costs are expected to rise by 29% in 2014-15, and account for 35% of the expected increase for the average consumer.

Queenslanders without solar can also blame those that do, with another 30% of the increase due to Queensland’s Solar Bonus Scheme. The scheme pays generous feed-in tariffs to residential customers who sell the electricity they generate back into the grid.

Network charges for the ‘poles and wires’ account for 26% of the increase, and typically represent close to half of the electricity bill. Of course, utilities companies have been accused of ‘gold plating’ their networks, by spending unnecessary capital upgrading their networks. The more money they spend, the more they make, despite the fact that energy use is falling.

In September 2012, the Australian Energy Regulator (AER) knocked back an application by Envestra (ASX: ENV) to spend $765 million to upgrade its network. AER said the company only needed to spend $315.4 million. AER also took action against APA Gasnet – a subsidiary of APA Group (ASX: APA) which wanted approval to spend $766 million on upgrades and extensions. That was 65% above what the AER deemed appropriate.

SP Ausnet (ASX: SPN) was also accused of turning a $107 million spend (in 2006 dollars) into a $271 million project, in a complicated affair, to upgrade its network in the Melbourne CBD, following electricity outages.

Foolish takeaway

Perhaps the best defence for consumers is to invest in the gas and electricity utilities such as those mentioned above, or retailers including AGL Energy (ASX: AGK) and Origin Energy (ASX: ORG), although at current prices neither appears cheap.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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