Gas networks have made $1.8 billion in profits between 2014 and 2022, which is on top of their $2 billion profit allowance, finds Jay Gordon, the Institute for Energy Economics and Financial Analysis’s analyst of Australian electricity.
The excessive profits were attributed to “under-forecasting errors by the networks”, which regulators have “failed to correct for,” said Gordon.
This meant consumers had overpaid $1.8 billion in total to gas networks in the last decade, adding up to an estimated 5 per cent extra to a typical gas bill – some consumers would also be charged more than others depending on which networks are imposing the costs.
“No one is stopping them from profiting even when consumers are having trouble paying their bills,” Gordon said.
Like electricity networks, gas networks are considered natural monopolies because customers can choose the physical gas infrastructure they can connect to.
Monopolies also risk abusing market power and forcing consumers to pay higher prices. This is why the Australian Energy Regulator regulates gas networks in Australia, which decides the charges the networks are allowed to pass through to the consumers.
Pricing generally allows networks to recover costs while allowing for reasonable profit allowance and decided based on a forecast of how much gas may cost in the next five years. This could lead to “under-forecasting”, where the cost of operation was less than what networks have forecasted, leading to “supernormal” profits.
The IEEFA also previously found that supernormal profits did not equal to increased productivity among electricity networks.
“In a future where residential gas is declining, gas networks are now asking consumers to wear their potential losses. The failure of governments and regulators to address this issue could mean a costlier and risker transition for consumers,” Gordon said.