Jessica Berry

SA Power Networks makes 4 times more profit out of us than its UK group -news article

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    SA Power Networks owned by billionaire Li Ka-Shing makes four times more profit out of us than its UK group


    • by: Miles Kemp
    • From: The Advertiser
    • June 04, 2014 10:23PM

    SA’s electricity distributor makes four-and-a-half times more profit per customer than its sister company reaps in the UK.

    SA Power Networks makes after-tax profits of $420 a year from each customer, while UK Power Networks makes $92.

    Both entities are majority owned by billionaire Li Ka-Shing’s companies. Experts say the figures show how SA’s system favours companies ahead of customers.

    The lopsided figures have been branded “super profits” by the State Government.

    Energy economics consultant Bruce Mountain said SA Power Networks, the state’s sole electricity distributer, must explain why its after tax profits per customer were so much higher than its sister company’s.

    “Cost differences between Britain and South Australia do not seem to explain such large differences in profits,’’ he said.

    “It is hard to see how the argument that both costs and profits should be higher in Australia than Britain can be sustained. Australia’s regulators need to keep a beady eye on actual outcomes, not just theoretical models of what is happening.

    “The proof of a cake is in its eating.”

    Mr Mountain, a director of energy economics consultancy CME, highlighted the figures at a symposium at the London School of Economics, based on the annual reports of the two companies.

    He said the figures showed SA customers were suffering under a system in which the government regulator did not act in their interests. The Federal Government had an obligation to tilt the balance back towards the customer.

    “It is not the UK system which is odd, rather the bizarre Australian outcomes reflect price controls that have allowed these regulated businesses to earn much more than is needed to satisfy lenders and investors,’’ Mr Mountain said.

    “It is time to get serious about fixing failures in the design and execution of regulation. But it should not stop there, the regulated businesses also need to be accountable for the way they respond to regulations.’’

    SA Power Networks (formerly ETSA) and UK Power Networks are majority-owned by Asian infrastructure giant Cheung Kong Infrastructure.

    It means SA Power Network’s ultimate owner is Mr Li, whose fortune of $36.2 billion makes him the world's 15th richest person.

    Charges for SA Power Networks services, the so-called “poles and wires” of the electricity system, are around 40 per cent of the average $1911 household electricity bill.

    UnitingCommunities energy expert Mark Henley said SA Power Networks — and not just the government regulator — was to blame for the high profits it made from an essential service. Those profits had contributed to some SA pensioners being unable to use heating this winter.

    “In the end, it is a combination of rules and government policies that have heavily favoured the companies, limited regulator clout, and limited capacity for consumers to demand accountability of companies,’’ he said.

    “After a number of years of rapidly rising energy prices, it is clear that SA customers are paying too much. It’s time to actively reduce the network costs (in particular) paid by SA consumers and not maintain the current excessive prices.

    “SA Power Networks in their various guises have pushed the system to their own benefit. Consumer best interests have been hit for six over a number of years. So I am saying blame is shared.’’

    Energy Minister Tom Koutsantonis described the money made from SA customers as “super profits”.

    “I will be writing to the Federal regulator and to the Prime Minister Tony Abbott to say that it is unacceptable for a regulated company like SA Power Networks to make super profits from its customers,’’ he said.

    SA Power Networks is asking the Federal Government for two more price rises, one of which would add $20 to the average annual power bill.

    The money would be spent on infrastructure which critics say is “gold plated” and already costing customers too much money.

    The other rise is a share of a $95 annual increase being sought by three companies, including SA Power Networks.

    A spokesman for SA Power Networks said it did not determine the financial conditions under which electricity companies operated.

    “The financial outcome for SA Power Networks is determined by the Australian Energy Regulator (AER) within the national electricity framework established by Federal and State Governments,’’ the spokesman said.

    “ ... historically, independent benchmarking has shown SA Power Networks among the most efficient distributors here in Australia.”

    The regulator refused to comment.

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    I am shocked (not electrically) the article doesn't cover the distance electricity has to travel here, especially to get it to remote places?

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