One of Australia's leading think tanks has called for a comprehensive revamp of the country's electrical power system, accusing it of being a monopoly which generates "obscene" returns for networks.

A new report released by the Grattan Institute entitled Shock to the System claims that Australia’s power networks are in essence monopolies which are protected from market forces by poor regulation, putting them in a position where they can levy wholly unreasonable fees from everyday consumers.

According to report author Tony Wood, regulators have made the error of setting tariffs too high, enabling power networks to earn “obscene” profits via their monopoly positioning.

Wood said that this could lead to a sustained rise in the average power bill by roughly 12 per cent a year – or an additional $200 in the immediate term even prior to the effects of compounding.

While Wood said that the removal of the carbon tax by the Coalition could mildly alleviate electricity costs for consumers, it would be unlikely to result in the nine per cent savings the new government claims it can achieve.

Tony Wood

Tony Wood

The report points in particular to over-investment in power infrastructure as a key problem in certain states, including New South Wales, Queensland and Tasmania. This over-investment, in tandem with declines in consumption, has led to an irrational situation in which Australians are paying greater amounts for consuming less electricity due to increased network costs.

While power consumption has recently logged its the first decline in half a century, falling seven per cent in just the past seven years, annual power bills have risen by 85 per cent over the same period to hit $1,660.

The Grattan report says that without reform, Australia’s electricity sector could succumb to a “death spiral” of declining consumption and rising prices compelling customers to flee from the network in large numbers, which could eventually put “the whole funding model of Australia’s regulated power networks…under threat.”

Solutions outlined by the report include making power from networks cheaper to reduce rates of consumer disconnection, and setting prices higher during periods of peak demand. It also advocates writing down the value of network assets in order to reduce the “regulated rate of return” for owners, which in turn will bring down the levels of revenue expected from consumers.