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Household electricity bills are likely to soar even higher than the 23 per cent recommended yesterday after the state government revealed it did not intend to remove a tariff that accounts for about $95 per bill.

The Economic Regulation Authority yesterday recommended removing the Tariff Equalisation Fund that South West residents and businesses pay to allow remote customers to access electricity at the same rate.

Instead, the difference should be provided by a Community Service Obligation funded by taxpayers, the ERA said. This would spread the liability across the state and reduce household bills by 7.3 per cent.

The policy already applies to water.

In its draft decision on electricity prices, the ERA found household electricity bills would need to increase by $353 in 2012-13 to represent the true cost of generating and distributing power.

Taxpayers are subsiding electricity bills by $350-400 million per year. The Barnett Government aims to raise tariffs to reach cost reflectivity.

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It already has increased electricity tariffs by 57 per cent since 2009 and has budgeted for a further 5 per cent increase from July 1.

The ERA’s 23 per cent recommended tariff increase is based on the TEF being removed.

Without shifting the $180 million TEF liability from customers’ bills into the state budget, residents could face electricity price hikes of more than 30 per cent, adding $450 to the average household annual bill which the ERA has calculated to be about $1500.

“The subsidy … is not a cost that is associated with generating, distributing or retailing electricity in the South West,” the ERA says in its draft decision.

“It is a cost associated with a government policy decision.

“… the TEC is not a component of an efficient, cost reflective tariff.”

While Minister for Energy Peter Collier was unable to comment on the draft decision in detail yesterday, pending the final report, his spokesman said removing the TEF was “definitely not on the radar”.
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Opposition energy spokesman Bill Johnston said Labor was still considering the TEF recommendation but there was a strong argument to remove it.

“Of course if you take $180 million out of the budget that’s a big impact on the budget and we’d have to work out whether we could afford to do that,” he said.

However, if the ERA’s full suite of recommendations were accepted, the government would gain $400 million from reaching cost reflectivity, creating a net gain of $220 million.

The ERA says its recommended increase is needed to cover increases in the cost of generating and distributing electricity, as well as to make up for the former government’s eight-year price freeze.

It accounts for the federal government’s carbon tax, which is expected to add more than 8 per cent to electricity bills from July 1.

Residents would bear the brunt of price increases, while large businesses would have their bills cut by more than 9 per cent.

The recommendations assume the ERA’s draft decision on Western Power released last week, which caps the amount of revenue that can be earned at $6.8 billion – $3.4 billion less than requested.

The revenue reflects network costs for Synergy and account for about 40 per cent of electricity bills.

It was not in the inquiry’s terms of reference to recommend a timeframe in which to implement the tariff increases but the ERA said if the government continued with its planned incremental rises, there would need to be increases of $63 per year (3.5 per cent) for each year from 2013-14.

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April 6th, 2012

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