System to blame for power bill inequities

IT IS a striking figure. Households using a two-kilowatt reverse-cycle airconditioner at the height of summer are being subsidised by those who are not to the tune of $330 a year.

It is one of the findings of a draft Productivity Commission investigation into Australia's energy markets released yesterday. The commission says 25 per cent of electricity bills pay for just 40 hours of power delivery when demand is at its peak.

So why are Australian consumers paying so much for so little power?

The problem is infrastructure must be built to cope with the periods of greatest demand, while most of the time it sits idle. But the way electricity is priced means the costs are spread across all users, no matter when or where they use the power.

''The problem is the price the vast majority of consumers pay for peak power is too low. They are not seeing the economic costs that are associated with a whole lot of infrastructure - generation, distribution and transmission - which is used for a very short period of time,'' says energy expert Bruce Mountain, the director of Carbon Market Economics.

Mr Mountain says over the past seven years electricity demand has been highest in the last week of January and the first two weeks of February - when school returns, industry starts up again, and hot temperatures are prevalent.

Cameron O'Reilly, the head of the Energy Retailers Association of Australia, said households were the main driver of peak demand. While industry uses more power, it wants it at a predictable, consistent rate. Households tend to demand it in short, sharp bursts.

''Most of us have come to expect things like airconditioned houses and well-heated places in winter, and there tends to be a habit where people tend to come home and turn on those airconditioners all at the same time,'' he said.

''The infrastructure has to be in place to deal with that sudden surge in demand.''

The Productivity Commission says spreading the costs across all users encourages over-use of power at peak times and results in higher bills. It creates inequities - low-income households subsidise the better off.

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