The strange thing was retail rates did not register any drop going into April. It has in fact been creeping up steadily in response to rising wholesale prices on the back of higher oil prices. This suggests to me a political element in suppressing the Q2 tariff pointing to a closer general election. If I am correct, then somewhere along the line, possibly after the election, an adjustment will have to be made to pick up the tap on the under-adjusted tariff of Q2.
Unknown to most people, they upped the use-of-system rate by another $0.0013/kWh to $0.0544 in Q2. This is the grid or transmission charge. It is a tiny figure, but with national consumption of about 54 tetrawatt, SP Power group will pull in another $70m per year in revenue.
In previous blogs I explained how the regulated tariff is computed. A quick brief recap here for convenience. Electricity generation cost (inclusive of genco's ROI) is forecasted for each quarter. This rate is used to apply to vesting contracts for certain quantity of load, ie SP hedges with gencos. The hedging cost (difference between vesting contract rate and actual wholesale rates) of one quarter is adjusted in the next quarter's forecasted generation cost and the net is the tariff for the next quarter.
Due to over-capacity. gencos tend to bid low. As a result, SP hedges tend to result in SP paying gencos for the hedge. SP hedges to cover 100% of non-contestable load (ie total load of consumers who have not switched to retailers) or the LNG vesting contract quantity whichever is higher. The hedging cost of the previous quarter is all borne by those consumers who have not switched to retailers (since they pay at the tariff rates.
As more consumers switch to retailers, there will be a point when the vested quantity exceeds the total quantity in respect consumers who have not yet switched. In which case, the hedging cost will be apportioned to SP consumers and contestable consumers (those who have switched). Well, that situation has arrived. So in Q2 onwards, retailers added on a new cost component called 'vesting charge' rate of $0.001 to be charged to their customers. We can expect this to increase further in Q3,
The grid charges of $0.0544 and vesting charge of $0.001 are all pass-through costs that retailers collect from their customers. Carbon tax are mostly absorbed by retailers (but of course, they have worked it into their prices).
So in reality, cost has risen in Q2 but hidden in an overall lower tariff.
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