Carbon Tax – The Post Repeal Wash Up

Powering On examines the retrospective repeal of the carbon tax on 17 July 2014 and what that means for large energy users.

What does the repeal mean for ERM Business Energy large market customers?

The impact of the repeal on your electricity invoices depends on whether your contract is “carbon exclusive” or “carbon inclusive”.

Carbon exclusive

Customers on carbon exclusive contracts have been paying a separate carbon amount of approximately $21.00/MWh (slightly lower in Western Australia) on all loss adjusted consumption, up until 30 June 2014. This was in addition to all other amounts payable under your contract.

Without the repeal, the carbon amount would have increased by a further 5% on 1 July 2014. With the repeal, this separate carbon amount is no longer payable and we have backdated the effect to 1 July 2014. You will notice that the separate line item does not appear on your invoice for July.

Carbon inclusive

Customers on carbon inclusive contracts have not been required to pay a separate amount for carbon. There is no reduction in the energy rates under these contracts from 1 July 2014. Similarly, if the carbon tax had not been repealed, there would have been no increase in the contracted business energy prices.

Although the energy rates under these contracts are not reduced, the rates effectively contain a carbon discount (whether repealed or not) because they were based on forward wholesale market rates that factored in the likelihood of repeal.

How does the repeal affect electricity generators?

The repeal Act provides that generators will have a liability for carbon emissions up until 30 June 2014, but do not have a liability after that date.

The final liability date for carbon emissions is in February 2015. Despite the repeal, this liability remains as does any outstanding liability for earlier periods.

What about the new ACCC powers?

The Australian Competition and Consumer Commission has given new powers to ensure that the electricity company does not engage in price exploitation in relation to the repeal of the carbon tax. The new powers effectively provide that retailers must pass on any cost reductions that they receive as a result of the repeal. ERM Business Energy will obviously comply with the new obligations.

Some costs won’t fall immediately after the carbon tax is repealed. For example, some wholesale hedging contracts are done on a carbon inclusive basis and do not provide for a price reduction upon repeal. Entering into wholesale contracts on this basis allows ERM Business Energy to offer carbon price certainty to its carbon inclusive customers.

What about the 9 percent price reduction I have heard about?

There has been some reference in the press and various Government and ACCC statements about a likely 9 percent rise in electricity savings as a result of the repeal of the carbon tax. That figure is a reference to the expected overall reduction for all customers (including residential) and not a legislated requirement that prices for all customers must immediately fall by 9 percent.

The exact price reduction for individual customers will depend on a number of issues, including the type of contract entered into and the proportion that the energy charge component bears to the total bill (which includes network and other charges). Some customers may receive a reduction in excess of 9 percent while others may not see a reduction until their current contracts expire.

ERM Business Energy does not expect that the repeal of the carbon tax will lead to any immediate reduction in network charges or other green certificate charges.

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