Momentum Energy - Sale of Retail Peak Power

Ms ARMITAGE question to ACTING LEADER of the GOVERNMENT in the LEGISLATIVE COUNCIL, Mrs HISCUTT

(1) Why is Momentum Energy, a division of Hydro Tasmania, selling retail peak power for 16 cents per kilowatt through Basslink to small $120-a-month residential interstate customers?

(2) How is it possible to deliver Tasmanian power to mainland residents for 16 cents per kilowatt, even when they have gas hot water and gas heating that include Basslink fees, when Tasmanians pay over 60 per cent more at 26 cents, or nearly double the rate, at 31.5 cents on peak time of use option?

(3) Who is subsidising Tasmanian-generated power purchased interstate for this to occur?

(4) Will Tasmanians be able to purchase affordable power at Momentum's demonstrated interstate residential peak rate price of 16 cents per kilowatt and if not, why not?

(5) Please explain the advantage or disadvantage of Tasmania exiting the national energy market and going it alone for the benefit of Tasmanians as Tasmania has an envied state-owned hydro scheme?

(6) What advantages are there of closing down Aurora to further cut costs and see Momentum Energy via Hydro Tasmania deliver such affordable power to Tasmanians as they demonstrate?

(7) Why are Tasmanian businesses not to be given the benefit to protect their viability and our economy and jobs given recent contracts for $40 000 per annum? Customers of Aurora's peak rate rose from some 19 cents a kilowatt to 42 cents a kilowatt. How can that be justified given that it is more than double?

ANSWER

Mr Deputy President, I thank the member for Launceston for her question. The answer is quite long, but I will work my way through it.

(1) The answer assumes the member is referring to customers with a peak demand of less than 120 kilowatts. Great care needs to be taken in seeking to compare Tasmanian tariffs with interstate tariffs because each will be structured differently. What we can say as a general statement is that Tasmania's regulated power prices are amongst the lowest in the country.

The price of 16 cents per kilowatt hour referred to in the question relates to a specific tariff known as the demand retail tariff. The demand retail tariff has a lower variable charge - that is, 16 cents a kilowatt - compared to other tariff structures, but has a higher fixed charge. The fixed charge comprises a daily charge plus a demand charge per kilowatt per month based on the time of year. This is in addition to the 16 cents per kilowatt hour.

The Momentum Energy standing offer for residential customers in Victoria ranges between approximately 23 and 30 cents per kilowatt hour depending on the network provided. In comparison, the standing residential rate for Tasmanians is 25.9 cents per kilowatt hour for tariff 31 and 16.8 cents per kilowatt an hour for tariff 41.

(2) In relation to the demand retail tariff of 16 cents per kilowatt hour, I refer the member to the previous answer and add that in general, prices for end users are made up of a number of components such as the wholesale price transmission and distribution charges and retail margins. Variables such as these often lead to different price outcomes across regions.

However, as outlined in a report published by the Australian Energy Market Commission in December 2016, Tasmania has, on average, a lower residential price per kilowatt hour than Victoria by approximately 5 cents per kilowatt hour.

The Government has acted to limit price increases from 1 July 2017 to the CPI for regulated customers in Tasmania. This contrasts to residential power prices in other states like South Australia, New South Wales and the ACT, where power prices have increased in the order of 15 to 20 per cent.

Through this action, which covers 99 per cent of all power customers in Tasmania, regulated prices for residential and small business customers are still lower today than when the Hodgman Government came into office and are among the lowest prices in Australia.

In addition, for concession customers the electricity concession is one of the most generous of all states. Since we came to government, the electricity concession has increased by over 7 per cent while electricity prices have gone down, meaning concession customers are better off under this Government.

(3) There is no subsidy from Hydro Tasmania for the Momentum Energy retail price offers. Momentum Energy's activities do not impact on Tasmanian power prices.

(4) Through Tasmania's energy businesses, Tasmanians are able to access power at prices that are among the lowest in the country.

(5) Tasmania's physical connection to the National Electricity Market delivers important advantages to Tasmania. Tasmania has very high rainfall variability. If operating in isolation from the NEM, this has two significant implications. The first implication is the possibility of extended dry periods impacting on energy security, and the second, which is the reverse situation, is the possibility of high rainfall or extended wet weather with the waste of energy potential through spill where dams do not have the capacity to hold the volume of water that is flowing in.

This was outlined in the 2012 final report of the expert panel where it was noted that -

Basslink has proven it to be an effective and cost-efficient means of managing hydrological risk.

That is, the risk associated with high rainfall variability is significantly mitigated by interconnection to the national grid.

In addition, physical connection to the National Electricity Market can enable Tasmania to export excess energy into the national market at high prices, which can support further renewable development opportunities in Tasmania.

It has been pleasing to see recent announcements of more than $600 million of new, renewable development being undertaken in Tasmania. This is important for attracting additional investment and creating jobs.

In terms of a pricing connection to the national market, the Government has expressed concern about the methodology currently applied for determining the wholesale price in Tasmania under the wholesale regulatory instrument. That is why the Government has intervened in the application of the methodology in determining this year's regulated power price outcome. The effect of the Government's intervention has been to limit regulated power price increases to around 2 per cent.

In addition, the Government is currently undertaking a review of how the pricing is determined to ensure that Tasmanian power prices continue to be among the lowest in the country into the future.

(6) Under section 39 of the Electricity Supply Industry Act 1995, Hydro Tasmania or a subsidiary is not permitted to retail electricity in Tasmania. This restriction was put in place as Hydro Tasmania is the dominant generator in the state and it is undesirable for the business to operate a retail business in the state as it would be at a competitive advantage to any other retailer who wished to enter the Tasmanian market.

Competition already exists within the Tasmanian electricity market for business consumers and this would be put at risk if Momentum Energy were allowed to retail in the state.

(7) The Government continues to do all it can to keep power prices as low as possible. However, ongoing volatility in the National Electricity Market has caused a significant increase in the national wholesale price of power over the course of this year. While 99 per cent of customers in Tasmania have the benefit of regulated power prices and have been protected from these increases, a number of larger businesses are unregulated and have been exposed to price increases.

The Government has worked with Hydro Tasmania to reduce the wholesale contract price of power by around 20 per cent. In addition, in this year's Budget, the Government allocated $20 million to be available for energy rebates for eligible business customers to further reduce the price impact. Under this energy rebate scheme, customers who have been exposed to the volatile prices since January 2017 will be provided with a rebate to align their wholesale energy prices to the price set for regulated customers, which is in the order of $85 per megawatt hour. While the market environment continues to be challenging for unregulated customers, this further intervention means they will have access to some of the lowest power prices currently on offer in the national market.

The Government is also undertaking a review of the wholesale pricing arrangements in Tasmania to ensure that in the future, Tasmanian energy prices continue to be among the lowest in the country.

In addition, since 1 July, these customers have seen substantial reductions in network costs in the order of 20 per cent. This is due to a focused effort by the Government through TasNetworks to be more efficient and reduce costs. This outcome will further assist Tasmanian businesses exposed to the National Electricity Market's volatile prices and make electricity in Tasmania more affordable.

I hope that answers the honourable member's questions.