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Tasmania's electricity shake-up

Updated June 19, 2010 16:52:00

There are questions about the state's energy companies - but certainty about price rises.

Source: 7.30 Tasmania | Duration: 7min 5sec

Topics: electricity-energy-and-utilities, business-economics-and-finance, industry, government-and-politics, state-parliament, tas


ALISTER NICHOLSON, PRESENTER: Hearing about power price rises in winter is always depressing; especially for Tasmania's low income earners.

But they're inevitable with prices all around the country heading upwards.

Adding to the woes in Tasmania is the massive debt burden on the three Government-owned energy companies.

This week the crisis hit boiling point with things so dire in the relationship between Aurora Energy and Hydro Tasmania, the Government stepped in and took over the regulation of prices.

A major review of the energy sector was also announced.

Lucy Shannon reports on a complex issue that affects every Tasmanian

DAVID BARTLETT, PREMIER: Rolling brown-outs, potential black-outs across the Tasmanian electricity system, as we've seen in places like California, may have occurred.

LUCY SHANNON, REPORTER: That was David Bartlett's confirmation this week that electricity retailer, Aurora Energy is in deep crisis.

Faced with the prospect of blackouts the State Government has stepped in and taken over the regulation of the electricity market.

And its blamed Hydro Tasmania for Aurora's current woes.

DAVID BARTLETT: Aurora has been paying Hydro too much for energy and therefore making a loss.

LUCY SHANNON: Aurora might have been paying ' too much ' for wholesale electricity but it hasn't been allowed to pass its costs on to consumers.

An independent regulator sets the price Aurora can charge householders and small businesses and according to Aurora that doesn't take into account any price hikes from Hydro.

So with Aurora sinking further into debt the Treasurer has stepped on Hydro's toes and will set the wholesale price himself.

The Greens are in support but the Liberals don't like it.

WILL HODGMAN, OPPOSITION LEADER: The appropriate authority to determine issues such as these is the energy regulator, not Michael Aird.

LUCY SHANNON: So if Hydro Tasmania is forced to sell its power at a cheaper price where does that leave its bottom line?

Until recently Hydro's debts were the ones raising most concern,$200 million worth were transferred to transmission company Transend a couple of years ago.

CHRIS HARRIES, ENERGY ANALYST: There's no point in kicking a football between Hydro and Aurora. They are both actually caught in the same situation. Something's gotta give, it's like this balloon's growing bigger and bigger and bigger and something's got to give.

LUCY SHANNON: Energy Analyst and former adviser to the Greens Chris Harries welcomes a major review of the energy industry announced alongside the changes in regulation.

Mr Harries describes Tasmania's energy generator, Hydro Tasmania, as having two legs stuck in concrete.

A major problem, out of its control, is drought. It has wreaked financial havoc on a business relying on water.

Recently though it has had a reprieve due to good winter rainfalls.

The second issue relates to the major consumers of power in Tasmania; big industry.

Major industries and Hydro power have long gone hand in hand.

In the early days the Hydro Electric Commission needed bulk customers to justify building its schemes.

Today major businesses still negotiate contracts to take base loads of power at guaranteed prices.

CHRIS HARRIES: The bulk of Tasmania's electricity supply is sold under secret contract that we don't know about and that is hedged against fluctuations in prices to the extent that the remainder of the market is vulnerable.

LUCY SHANNON: The next major contract to be negotiated is with Rio Tinto, which runs an aluminium smelter at Bell Bay.

CHRIS HARRIES: The debate is between Hydro Tasmania, government officials, who have political interest and the larger economic interests of Tasmania as an overlay, with the corporation and that makes things much more awkward for the Hydro, because they can't pursue the sort of deal that they would like to come up with if we had a truly open market.

LUCY SHANNON: The group representing the major industries denies any suggestion that the big consumers get cheap power.

TERRY LONG, MAJOR EMPLOYERS GROUP: Tasmania used to have cheap energy, that's why a lot of our larger industries were here in the first place. It doesn't anymore. Energy to major industrial contractors in Tasmania is about on par with energy in other states, so you have to wonder why some of these larger companies are still in Tasmania given that electricity is a major cost to them. It's a fundamental part of their business and we're a long way from export markets.

LUCY SHANNON: Brett Mackay runs a small supermarket in suburban Hobart.

He says his spending on electricity continues to grow.

BRETT MACKAY: Well it's a large percentage of my business. It's basically employing another staff member, about over $30,000 a year and it's increased from about $4,800 a quarter to over $7,000 a quarter in the last two years.

We just can't say that we're going to increase prices because our power charges have gone up. Basically you just have to wear it yourself.

LUCY SHANNON: The Small Business Council says as part of the review into the energy sector it will be pushing strongly for increased contestability for the small end of town.

ROBERT MALLETT, SMALL BUSINESS COUNCIL: In excess of 96 per cent of all businesses in this State are small businesses and collectively they employ more than half of the people in this State. Now contestable electrical prices are historical, you know when we go back to the days of Comalco, when we've encouraged large business to come to this State because we've felt that that was a positive. But I think that times have changed, we now need to look at the smaller individual operators, the benefit and the wealth that they bring to this State.

LUCY SHANNON: It will be one of many complex issues examined by the independent review.

The review was the price the Government had to pay to get Greens support for changes in regulation.

It will be the first time the three Government-owned energy companies have been openly investigated.

The Greens have long been critical of what they see as the bungling of Tasmania's entry to the national electricity market through Basslink, in particular the $90 million a year Hydro has to pay to rent the cable.

They've also questioned the State Government's decision to buy the Tamar Valley Power Station from private operators who fell on hard times, which further eroded Aurora's balance sheet.

The performance of the three entities which operate virtual monopolies will undoubtedly be scrutinised in depth.

In the mean time for householders and small businesses price hikes appear certain.

CHRIS HARRIES: And the reality is that the situation has become so grave that we are going to see marked increases in electricity prices in the near future. It doesn't matter what the Government does with an enquiry or whatever, the forces at play are so big.

We're probably going to see in the next few years a doubling of electricity prices.

LUCY SHANNON: Reducing consumption might be the only option.