Antinuclear

How power companies, not the carbon tax, kept your electricity prices high

Energy analyst Bruce Mountain uncovered this tax issue when he realised the South Australian Power Networks (SAPN) had been allowed by the regulator to factor $414 million of company taxes into its pricing structures for 2011- 2015.

This seemed at odds with the fact that SAPN’s financial documents disclosed no tax paid, instead reportinga $4.2 million tax credit for 2011 to 2013.

For Mountain, an engineer, chartered accountant and economist with more than two decades’ experience in advising governments, regulators and companies on energy policy, this raises an intriguing question.

He posed the question in a presentation to the Australian Energy Regulator (AER): “So, how much tax has SAPN actually paid, and how does this compare to what it has been allowed to recover from electricity users?”

It’s a question that SAPN itself cannot answer. Spokesman Paul Roberts says: “As a partnership, SAPN does not have a corporate tax liability. That’s a matter for the partners.”So, Mountain dug a little deeper. The SAPN is 51 per cent owned by two companies that both belong to the Cheung Kong Group of companies. Owned by a Hong Kong-based billionaire, these companies are conveniently incorporated in tax haven, the Bahamas.

The remaining 49 per cent is owned by Spark Infrastructure, which also has an interest in Victoria Power Networks. Due to a variety of factors, including accelerated depreciation and losses, Spark is also not currently paying tax on income from its SAPN assets.

It would seem the $414 million that SAPN is allowed by the Australian Energy Regulator to charge customers to cover its income tax bill from 2011 to 2015 may be providing a windfall gain to shareholders at consumers’ expense. “I think there has to be explanation for any sizeable difference between what consumers are paying and what the Tax Office is receiving,” says Mountain.

The tax issue is particularly interesting considering another of Mountain’s findings. His research suggests that SAPN is generating much higher profit per connection from its customers than the United Kingdom Power Networks, also part-owned by the Cheung Kong Group………..

A spokeswoman for the regulator confirms the tax allowance it factors in to its calculation of power prices has nothing to do with the networks’ actual tax bill……..

The steep growth in electricity prices in recent years played right into the Coalition’s political narrative about the carbon tax. Remember it was going to push the price of a Sunday roast to $100 and leave pensioners struggling to pay their bills?

That latter claim was aired in parliament in October 2012, when Tony Abbott brandishing a bill from an 82-year-old pensioner, claimed the $800 increase in one bill was 70 per cent due to the carbon tax.

In fact, the carbon tax was only ever responsible for an increase of about 9 per cent in power prices, so its removal has not reversed recent price rises, with electricity bills almost doubling in some states in the past five years.

The bigger story is one that was well charted by journalist Jess Hill in The Monthly in July 2014. “Since 2009, the electricity networks that own and manage our ‘poles and wires’ have quietly spent $45 billion on the most expensive project this country has ever seen,” she wrote.

“Allowed to run virtually unchecked, they’ve spent vast sums on infrastructure we don’t need, and have charged it all to us, with an additional fee attached. The spending was approved by a federal regulator, and yet the federal government didn’t even note it until it was well under way.”

Essentially, growth in demand forecast by the power companies to justify charging consumers for spending on new poles and wires has never materialised.

The “gold-plating” argument goes that power networks had incentives to build extensive new infrastructure because the regulator allowed them to charge consumers for a much higher cost of capital than they actually incurred.

Even the state-owned network companies, in New South Wales and Queensland, were allowed to factor in to their pricing an interest rate on debt that would have been high in a commercial context and was well above the discounted rate that they were able to secure on their borrowings from state treasuries.

Privatisation is now off the table in Queensland, following the Liberal National Party’s shock election loss, but as the NSW government prepares to sell its networks, it is worth noting that, through higher power prices, consumers have subsidised the expansion of their asset base……..

The Energy Users Association of Australia, in its submission to the senate committee, recommends a regulatory overhaul to make the network companies accountable for their investment in assets that may never be needed.

“In essence, the key question being asked by the committee is – who should bear the costs of poor investment decisions?” the submission says……..http://www.thesaturdaypaper.com.au/business/taxation/2015/02/07/power-games-the-electricity-industry/14232276001464#.VNVct-aUcnl

February 7, 2015 - Posted by Christina Macpherson | AUSTRALIA - NATIONAL, energy