ELECTRICITY PRICES

In reply to the Hon. M. PARNELL (14 June 2012).

The Hon. G.E. GAGO (Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for the Status of Women, Minister for State/Local Government Relations): The Minister for Mineral Resources and Energy has provided the following information:

1. I am advised that the wholesale costs are only one of many costs that make up retail electricity prices. The recent increases to the regulated electricity price were primarily driven by network cost increases.

It is important to note that wholesale electricity pool prices can be extremely volatile. During periods of abundant wind generation and low demand conditions, South Australia can experience negative prices and during tight supply and demand conditions, I am advised that prices can approach the market price cap of $12,900 per megawatt hour.

Accordingly, retailers manage this volatility risk on behalf of households, which ensures households are not exposed to wholesale pool price volatility.

To manage this risk, retailers enter into financial contracts with generators and other parties or invest directly in generation capacity. Wholesale pool prices therefore are not an accurate reflection of retailers' energy costs.

2. The wholesale market is functioning as it is intended with prices reflecting the real time supply and demand conditions and retailers limiting their exposure to volatile wholesale pool prices through hedging contracts and direct investment in generation assets.

3. The government is acutely aware that rising energy costs are affecting many South Australians. As you may be aware, the government recently announced a move to prohibit exit-fees for household energy contracts in South Australia.

In addition, the government is currently working with industry stakeholders to develop a set of industry codes of practice that ensures door-to-door salespeople are adequately trained, accredited, supervised and do not seek to mislead potential customers.

These two reforms will give energy consumers a competitive advantage, greater freedom of choice and more confidence when dealing with power companies.

4. The policies of the former Liberal government have substantially exposed South Australians to higher energy prices through privatisation.

In 1998, the then premier, Hon. John Olsen MP, when selling South Australia's electricity assets said in the House of Assembly: 'outcome for reform of the State's electricity assets are a competitive electricity industry and sustainable lower electricity prices'. History has proven Mr Olsen to be wrong.

You will also recall that Labor strongly opposed the sale of ETSA and maintains that it was not in the best interests of South Australian energy consumers.

The government will continue to act within its powers to ensure both a healthy and efficient retail energy market but also to ensure that the strain on household power bills are being minimised as much as possible.