The Hon. Rob Lucas MLC

The Hon

Rob Lucas MLC

Treasurer

Ministerial Statements

MASSIVE COST INCREASE UNDER LABOR GOVERNMENT ELECTRICITY DEAL

Thursday, 2 August 2018

I seek leave to make a Ministerial Statement on the subject of electricity costs for the South Australian Government.

Over the course of 2017 the former government entered into arrangements for the supply of electricity to government sites, to replace the existing whole of government contract which expired in December 2017.

Sadly, in my view this position was yet another example of the incompetence and financial mismanagement of the former Labor government.

The process for such an important procurement was commenced only six months before the expiry of the whole of government contract. Such a short period of time to negotiate a whole of government electricity contract left too little time to negotiate the best possible deal for taxpayers.

As a result of this agreement, from 2020, the state government will source its electricity via a Generation Project Agreement with Solar Reserve and its Aurora solar thermal generation project near Port Augusta.

The creation of this agreement meant that the former government had to enter into a retail services agreement to provide electricity for the ‘bridging’ period January 2018 to when the solar thermal plant is operational (estimated to be November 2020).To secure bridging electricity supply arrangements from 1 January 2018 until 31 October 2020, the former government entered into one year contracts with incumbent suppliers Origin Energy and Simply Energy for small metered and unmetered lighting sites respectively, and an Energy Retail Services and Supply Agreement with ZEN Energy for the provision of electricity supply and retail services for the supply of electricity to all government sites from January 1 2019 to October 31 2020.

The broad financial implication of the contracting arrangement for the ‘bridging term’ is a significant increase in the costs of electricity for government sites from January 2018, largely based on increased costs for large sites. 

While the cost will ultimately depend on usage patterns of departments, initial analysis suggest that total costs may increase to $106 million in 2018, an increase of $45 million from 2017 representing a staggering 73 per cent rise.  While the costs are estimated to reduce to $90 million in 2019, and $78 million in 2020 these still represent increases of 47% and 27% over the December 2017 prices.

At an individual departmental level some of the increase are beyond comprehension. For example, the Department for Child Protection will see an increase of nearly 150 percent in 2018 over it previous electricity bill while the CFS will see a five times increase in its power bills for 2019. 

 Electricity Cost by Department (excl. GST)

 Agency 2017$'000s  2018$'000s  2019$'000s  2020$'000s 
 AGD  28 45 34 29
 CAA 950  1,519 1,184 1,009
 CFS  31  52  206  183
 DCP  38  96 59  51 
 DCS  1,733  3,191  2,339 1,991 
 DCSI  735 1,489  1,063  904 
 DECD  11,778  17,830  16,695 14,465 
 DEWNR  376 573  600  531 
 DHA  21,610  40,464  29,990 25,581 
 DPC  29 43 67 59
 DPTI  8,556 15,295 16,822 14,554
 DSA  1,807 2,982 2,308 1,978
 DSD  2,096 4,106 3,023 2,575
 MFS  238 427 449 390
 PIRSA  1,082 1,899 1,503 1,285
 SAPOL  1,560 2,801 2,194 1,876
TAFE SA  3,767 6,071 4,696 4,029
 URA  1,913 2,534 2,180 1,841
 OTHER  3,003 4,973 4,979 4,290
 Total  61,328 106,389 90,391 77,621

Without exception, all departments during the recent budget bilateral process have expressed great concern at the massive increase in their electricity costs as a result of this decision by the former Labor government.

The Government has sought to understand the basis for this increase and have been advised that during the assessment and negotiation of final contractual arrangements, Frontier Economics provided advice on the merits of the proposition and cost implications in comparison to benchmark prices.

However, we have been advised by Cabinet Office that we may not access this report due to the fact that the former Labor government attached the pricing analysis report to a submission to the former Weatherill Cabinet.

We believe that it is critical that the pricing report should be made public because it is important for South Australians to understand the basis on which this deal was stuck given the $90 million in additional electricity charges up to 2020.

This massive increase in electricity costs is another part of the financial mess left by the former Labor government which will need to be provided for in the coming budget.

Sadly this appears to be just another outrageous example of Labor’s secrecy and lack of transparency in the way it applied taxpayers money and I am sure South Australians will be gobsmacked by this deal the former government negotiated.

Consequently, for transparency, the Marshall government will engage an independent consultant to review the whole of government electricity contracting arrangements undertaken by the former government. This review will consider whether an earlier procurement process should have been used and what other options existed which might have reduced costs to taxpayers.
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© Rob Lucas 2016 | Authorised by Rob Lucas, Parliament House, Adelaide SA 5000