Reliability the bug in power bill equation

POSTED September 3, 2012

ELECTRICITY consumers would be better off if the NSW government allowed a lower level of reliability in the power distribution network, Australia's peak energy market body says.

The Australian Energy Markets Commission conducted economic modelling on three scenarios for lower investment in the NSW electricity distribution network - the poles and wires - and found the reductions in capital expenditure under each scenario significantly outweighed the costs to customers of slightly lower levels of reliability. 

Electricity bills would be cheaper and billions of dollars would be freed up for investment in roads, schools and hospitals if the reliability standards were reduced.

The commission's modelling shows that over 15 years from 2014-15 to 2028-29 reductions in distribution investment in NSW could range from $275 million to $1.3 billion in today's dollars depending on the extent of changes in reliability standards. By 2028-29, this reduction in distribution investment could lead to an increase in power outages by two to 15 minutes a year and savings of $3 to $15 a year for the average electricity customer.

A survey in the commission's review found customers valued reliability, but not to the level delivered by the current network infrastructure. It was the first time NSW customers have been surveyed on the trade-offs between reliability and cost.

The commission's final advice to the government on benefits and costs of changes to distribution reliability, released on Friday, updates a draft review in June.

The cost of the electricity distribution network has been the main cause of recent increases in power bills and the state's independent pricing and regulatory tribunal says excessive investment in poles and wires has inflated prices.

The previous NSW Labor government lifted reliability standards for the state's electricity distribution network in 2005. Investment to meet those standards has been approved and committed to mid-2014.

The commission chairman, John Pierce , said this limited the potential reduction in customer bills from reducing reliability outcomes in the short-term.

"Household bill impacts remain modest because investment to maintain existing reliability standards is just one of the drivers of network costs in this part of the supply chain," he said.