Volume Four 2012 focusing on Electricity

Good audit result

“I am pleased that the audits of the seven State owned electricity corporations resulted in unqualified audit opinions,” Mr Achterstraat said. “The electricity corporations’ end-of-year financial reporting is sound and well established,” he added.

After tax profits rose to $1.2 billion, up from $1.1 billion in 2010-11 and contributions to Government rose to $1.4 billion, up from $1.2 billion in 2010-11. These figures exclude profits and special dividends from the 2010-11 electricity sale transactions.

External debt of the Government’s electricity corporations was $19.3 billion, an increase of $2.3 billion over last year. The increase was largely due to borrowings to fund work on local area poles and wires.

Distribution to Government

Electricity entities’ accrued and paid distributions to the Government:

  • $572 million ($528 million in 2010-11) in taxation

  • $866 million ($636 million in 2010-11) in dividends (excluding special dividends specifically relating to the electricity sale transactions of the distributors).

Carbon pricing impact on generation assets

Carbon pricing significantly impacted the valuation of electricity power station assets resulting in Macquarie Generation writing down its infrastructure asset values by $1.0 billion at 30 June 2012. Delta Electricity had assessed the impact of carbon price in the previous year, which resulted in a $318 million write-down of its Central Coast power stations in 2010-11. An additional $59.6 million was written off the values of the Vales Point and Colongra power stations in 2011-12.

Consumer electricity bills rising sharply

“The average household electricity bill has increased by about 80 per cent over the last five years,” Mr Achterstraat said. “From 1 July 2012, electricity prices rose a further 18 per cent,” he added.

The 1 July 2012 increase is mainly due to rising network charges – poles and wires and carbon pricing. The network charges are expected to add 8.4 per cent and carbon pricing is expected to add 8.9 per cent.

“Nearly $17 billion is expected to be spent on poles and wires from July 2009 to June 2014,” Mr Achterstraat said. “The significant increase in capital expenditure is partly driven by electricity reliability standards implemented in 2005 and higher demand forecasts,” he added.

“I am advised that Ausgrid’s significant increase in capital expenditure from 2009 is due to the number of customers it serves, their network being the oldest in Australia and the high cost of working in metropolitan areas,” said Mr Achterstraat.

“To avoid criticisms of ‘gold plating’ the network, TranGrid and the distributors, Ausgrid, Endeavour and Essential must ensure their capital expenditure programs are efficient and prudent,” Mr Achterstraat said.

Key reforms have been announced to streamline decision-making and optimise value across the three distributors, Ausgrid, Endeavour and Essential.

The new model aims to reduce duplication of corporate services and overheads, standardise IT and network management and deliver economies of scale through bulk purchasing.

“I am advised these reforms are expected to achieve $400 million in efficiency savings,” said Mr Achterstraat.

The price paid to generators for the electricity they supply has been declining for at least the last five years. In 2011-12 the average spot price was $29.67/MWh, 19 per cent down from the previous year’s price of $36.74 and down from $44.19 in 2009-10.

The two major components of a typical residential bill are network charges (50%) and generation charges (25%).

Significant levels of overtime

Overtime is a significant cost for Ausgrid, Endeavour Energy and Essential Energy.

“While I can appreciate that certain levels of overtime are required to deliver and maintain services, excessive levels must be avoided,” Mr Achterstraat said.

“Excessive overtime is not good for employees’ health and safety, not good for the bottom line and is certainly not good for the retail customer who is paying for this through higher electricity prices,” he added.

Ausgrid paid over one million hours of overtime during 2011-12 – 865 employees were paid 50 per cent or more of their annual salary in overtime.

At Essential Energy, over 200 employees were paid more than 50 per cent of their base salary as overtime.

At Endeavour Electricity, 34 employees received more than 50 per cent of their base salary in overtime.

Decreased demand for electricity

“Consumers are reducing their average demand for electricity but the capacity of the system needs to be maintained for demand spikes,” Mr Achterstraat said. “The highest of these usually occurs during summer due to air conditioners. Maintaining this level of capacity comes at a price,” he added.

Peak demands for 2012 occurred in summer on 30 January 2012 requiring 11,886 megawatts of electricity and in winter on 19 July 2011 reaching 12,884 megawatts.

The highest energy wholesale price in 2012 was $6,497 per megawatt-hour on 9 November 2011 at 3:30pm. The lowest price was $3.85 on 7 March at 2:30am.

“In 2008, I reported demand for electricity in NSW would exceed generation capacity by 2013-14. This estimated date is now beyond 2021-22”, he added.

The widening gap between demand and generation can be attributed to lower projected demand in generation capacity and energy efficiency measures as well as consumers responding to increasing electricity prices.

Further information

Contact Barry Underwood (02) 9275 7220; 0403 073 664 or email barry.underwood@audit.nsw.gov.au