Sneaking an extra charge

HOUSEHOLDERS will pay between $52 and $84 extra on their electricity bill next year because of a sneaky special allowance the independent pricing regulator says is necessary to ensure competition in the power market.

The new charge will wipe out most of the government's $75-125 Family Energy Rebate.

IPART wants to institute a customer acquisition and retention cost (CARC) allowance, which it says is needed to encourage retail companies into the market.

IPART's draft determination last week would have seen a power price decrease, not an increase, except for the new allowance, consumer advocates said.

Instead, customers face an increase at the rate of inflation - about 3 per cent.

The independent pricing regulator's argument is that retailers should be allowed to charge more than it costs to supply electricity. It said this would lead to more retailers coming into the market and, eventually, lower prices.

The determination means Energy Australia customers cop a $52 a year extra cost, Origin customers in the Endeavour network area will pay $58.50 on the regulated price and Origin customers in the Essential network area will pay $84.50 extra on the average annual household bill.

At present, 40 per cent of electricity bill payers are on the "regulated retail price" - those who have not sought out other power companies than those that traditionally serve their areas - and they are the ones who will face the price allowance in its entirety.

The other 60 per cent of the market will also feel the pain because their rates are pegged to the regulated retail price.

"The level of regulated retail prices has a significant effect on the development of the competitive market," IPART found.

"If prices are set too close to the short-term efficient cost of supply, there is likely to be little to gain from participating in the competitive market."

The IPART determination sets the new allowance at $8 per kilowatt hour for Energy Australia customers for 2013-14 and 2014-15, $9 per kilowatt hour for Origin Customers in an Endeavour Network area and $13 for Origin customers in Essential areas.

The Public Interest Advocacy Centre has reacted with anger to the allowance.

"Without these costs, consumers could have been celebrating a price drop," said Carolyn Hodge, senior policy officer at the Public Interest Advocacy Centre (PIAC).

"According to IPART, a profitable retail sector will encourage competition and inevitably provide consumer protection. PIAC questions the logic of hiking prices up solely to encourage the possibility of driving them back down at some time in the future."
 

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How you gave big banks an extra $3.7bn

The major banks made an additional $3.7 billion in profits over the past year as a direct result of not passing on cuts in interest rates.  Picture: Thinkstock Source: Supplied

THE MAJOR banks have pocketed an additional $3.7 billion in profits over the past year as a direct result of refusing to pass on recent falls in official interest rates - as pressure grows for out-of-cycle cuts to mortgage rates.

The banks' profit levels are running at around $310 million a month higher than they would have been if the cuts were passed on in full, the Australian Institute reports.

This comes as ANZ yesterday announced it would leave its standard variable rate on hold at 6.4 per cent despite admitting an easing in funding pressures.

Last year the Big Four - ANZ, Commonwealth Bank, National Australian Bank and Westpac - increased their cash profits to $25.1 billion, up from $24.1 billion a year earlier.

Australian Institute banking analyst David Richardson said borrowers are being ripped-off and it was time for the banks to lower their lending costs and give homeowner some relief.

"The banks are making enormous profits as the industry is so heavily concentrated making it vital that homeowners shop around for the best deal," he said.

The most recent data from the regulator shows the major banks control almost 85 per cent of the nation's $1.1 trillion mortgage market.

The banks have consistently refused to pass on the full fall in official interest rates since the rate cutting cycle began in November 2011.

Mr Richardson said that based on data from the Australian Prudential Regulation Authority this would have boost CBA's monthly profit by around $100 million.

Westpac would have generated close to $93 million a month, NAB $61 million and ANZ around $56 million.

The Reserve Bank this week left the official cash rate on hold at 3 per cent but a number of smaller financial institutions have already lowered their lending rates out-of-cycle.

But ANZ Australia banking chief Phil Chronican said the group's monthly rate meeting yesterday decided not to cut rates out of cycle.

Despite admitting there had been "some easing" of new funding costs, Mr Chronican said lending rates were left on hold as net interest margin - profit on lending - had decreased slightly since the start of the year.

But financial analysts said the major banks may be in a position to deliver out-of-cycle rate reduction of between .05 and .1 per cent by mid-year, if the global economic recovery continues.

But the timing of any future reductions is unclear as the banks try to balance out the demands of depositors for good returns, shareholders for higher profits and homeowners for lower lending rates.

This comes as the Australian Banker Association yesterday slammed the Green Party's proposal for a super profit on banks - similar to the mining tax - as tax on Australia's retirement savings.

Superannuation funds own large stakes in all the major banks, which paid out around $19 billion in dividends last year.

But Greens Deputy Leader Adam Bandt said the average Australian pays much more in bank fees and charges than they get back through superannuation schemes.

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