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26 July 2017

Small business sector slugged by rising power prices

There is mounting evidence that small businesses are bearing an unfair higher share of rising electricity prices.

Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, says submissions to the ACCC electricity pricing inquiry confirm anecdotal accounts that small businesses are being gouged.

Ms Carnell said while households in several states are grappling with price increases of 15-18 per cent, for most small businesses it’s above 20 per cent, with higher rises forecast next year.

“It’s totally unacceptable that energy-dependent small businesses like manufacturers and rural industries are being slugged more than householders and big business,” she said.

“The energy system is broken and needs to be fixed, but we can’t afford to see businesses close and jobs lost while governments and energy companies get their act together.”

Ms Carnell cited examples from submissions to the ACCC inquiry:

Printing Industries Association of Australia

Feedback from our members shows individual increases in electricity prices which include $20-30,000 a month; increases over the previous 12 months (or a comparable period) of 25%, 35%, 48%, 67%. One large-sized Melbourne-based print member will face an electricity bill increasing threefold (from $120k per annum to $360k) once its existing contract expires on 31 December 2017. Many of our members have incurred these increases despite decreasing the amount of electricity they use.

South Australian Wine Industry Association

We are aware of one larger winery that had invested nearly $400,000 in energy-efficiency improvements and solar power that reduced costs by around $120,000 per year, only to then face an increase in electricity cost of 160% in one year amounting to $250,000 – a cost that comes straight off the bottom line.

Alba Cheese Manufacturing (Melbourne)

All electricity retailers we have dealt with provide complex pricing arrangements which make it hard to make comparison between the various offers. In discussion with energy retailers they focus on the energy rate and blame energy suppliers for the cost increases, they gloss over their own charges and dismiss them as being “beyond their control”. Analysis of electricity charges over the last five years shows that network charges rose by an annual rate of 25.9% over the period whilst energy charges rose 21.3% per annum.

Business SA case study: Regional feed mill JT Johnson & Sons

JT Johnson runs a regional exporting business, centred around the export of hay and pellets to Middle Eastern and Asian fodder markets. In mid-2016, and after just having undergone a major upgrade of its power infrastructure, JT Johnson’s total energy bill increased from $800,000 to $1.6 million after its wholesale energy peak price trebled from 6.4 cents to 19.3 cents.

Tasmanian Small Business Council

The wholesale forward price for 2016-17 back in May 2015 was trading around $43.50/MWh and then 12 months later for the same period was trading at $59.60/MWh, a 37% increase in costs. For a contestable customer consuming 100,000MWh per annum, this cost increase would have been in the order of an additional $1.7 million. For a customer consuming 200MWh per annum, such as a school or medium-sized business, the additional cost would be $3400 per annum.

Ms Carnell said the submissions expressed small business concerns with lack of retail competition; complexity around price comparisons and billing; transparency, and disincentives to reduce consumption.

“I’m deeply concerned that small businesses appear to be victims of profiteering by electricity companies,” she said.

“I welcome the NSW Business Chamber suggestion of an industry code to provide minimum standards for energy retailers.

“These standards could be designed to provide a common basis for comparisons between offers, a minimum length of time to consider retail offers and requirements for greater transparency with billing.”