IPART chairman Peter Boxall

23 April 2014 — The New South Wales Independent Pricing and Regulatory Tribunal has released its draft decisions on average regulated gas prices, with increases in gas prices of between 14.4 per cent and 21.8 per cent proposed for both domestic and business customers, largely due to Australia becoming exposed to the international market. And, depending on the movement of electricity prices, it could affect the business case for co/trigeneration.

The draft is open for public submissions until 21 May, with a final decision expected in June for implementation by July 1 2014.

IPART chairman Dr Peter Boxall said the increases were largely due to rising wholesale gas prices.

“The ability to export liquid natural gas is driving a structural change in eastern Australia’s wholesale gas market, and increasingly domestic gas prices will be influenced by what is happening in world gas markets,” he said.

The draft decisions have been based on IPART’s assessment of proposals submitted by the gas Standard Retailers. Although the average price increases are almost seven per cent lower than those originally sought by retailers, they are still significant and the third consecutive increase in gas prices in NSW in three years.

The draft decisions allow for an average increase in regulated gas prices of 17.6 per cent in 2014/15, with prices relatively stable in 2015/16. From 1 July 2014 typical annual gas bills will rise by between $150 and $225 for households, and between $600 and $850 for small businesses, depending on location and level of consumption.

What it means for cogeneration and trigeneration

An industry source said the impact of rising gas prices on the return on investment in cogeneration and trigeneration would depend on movements in electricity prices relative to gas.

This is hard to predict, as one of the notable aspects of the IPART draft report is that this year the body has for the first time not proposed a ruling on electricity tariffs, ahead of government plans to completely deregulate the electricity market.

IPART stated, “The current regulated prices will apply until 30 June, at which time customers who have not switched to a competitive market deal will automatically be transferred to a ‘transitional tariff’.”

The draft does however cover solar-generated electricity prices, with a proposed price for solar energy feed-in tariffs of 5.0-9.6 cents a kilowatt hour.

“This range is a guide to retailers and customers on the value of electricity exported to the grid by customers from their solar PV units,” IPART stated.

The NSW energy minister gets it a bit mixed up

NSW Resources and Energy Minister Anthony Roberts missed the part of the report that laid the cause of increases on export demand and world prices, instead blaming the carbon tax.

“If Labor’s carbon tax is removed, NSW households and small businesses will see this increase cut by a third,” Mr Roberts said.

It’s worth noting that page 5 of the IPART report features a table that shows the carbon price accounts for between 1.1 per cent and 0.1 per cent of the price increases, much less than the minister suggests.

Industry is not impressed

“Industry is the biggest user of gas in the State – and it is industry that will suffer the most from the price movements that IPART is recognising,” Australian Industry Group NSW director Mark Goodsell said.

“Gas is a vital feedstock for chemicals, fertiliser and explosives, and a clean efficient fuel for aluminium, cement, food processing, foundries, paper, steel and much more. Some businesses will be able to pass on their costs to households and other customers, but trade-exposed businesses won’t. That means a hit to profits, reinvestment, and ultimately jobs.”

Mr Goodsell said the government needed to employ a national interest test to future expansion of the gas export sector to avoid a repeat of “the current mess”, though also suggested an increase in unconventional gas production, including coal seam gas.

Green say local consumers are subsidising foreign energy interests

Greens NSW MP and mining spokesman Jeremy Buckingham roundly criticised the increases, which he said were forcing consumers to subsidise the export market, including the expansion of CSG projects.

Mr Buckingham said a national interest test should be applied to ensure Australian gas consumers and manufacturers were not adversely affected by gas price hikes.

“IPART have made it crystal clear that gas price increases are due to the move to export LNG from the east coast. The gas supply issue is entirely artificial and should be resolved by proper regulation in the national interest, such as a domestic gas reservation,” Mr Buckingham said.

“[New South Wales] Premier Mike Baird needs to raise this matter urgently with Prime Minister Tony Abbott and COAG. Australia needs leadership that stands up to the big gas exporters and defends households and businesses against a massive market failure.”

Why coal seam gas is not the answer

The CSG issue has seen environmentalists, farmers and local political representatives align to oppose CSG projects in farming areas, including the Riverina (NSW), the Pilliga (NSW), the Darling Downs (QLD), Southern Highlands (NSW), Scenic Rim (QLD), the Hunter Estuary (NSW), Moree (NSW) and Kyogle Shire (Northern NSW).

Advocates of CSG, including Minister Roberts, have been arguing for greater expansion of fracking projects on the basis that it would reduce price pressure for Australian consumers. However, because it is global demand and global prices affecting the local market, this is unlikely to be true, according to Mr Buckingham.

“Coal seam gas is not the answer. The pursuit of CSG will have virtually no impact on the international price. Neither the government nor the gas companies should use these price hikes as an excuse to let coal seam gas threaten our land, water and communities,” Mr Buckingham said.

“The $150–$225 increase to the typical household is unjustified and will go straight into the pockets of the large gas companies, while they divert gas supplies to the export terminals at Gladstone.

“It is unfair that families, pensioners and small business should have to pay more for gas simply so companies such as PetroChina, Petronas (Malaysia), Kogas (Korea), British Gas, Shell (Netherlands), Total (France), ConocoPhillips (USA), Sinopec (China), Santos and Origin can make large profits through their export LNG consortiums,” he said.

Download the draft IPART regulated gas retail prices report.