When you receive your energy bill in Australia, you are likely to see a charge for the energy you have used as well a charge for extra fees and tariffs. Tariffs are taxes or duties, and they are typically not based on how much power you have used. Wondering what your tariffs may be related to?
In some cases, tariffs are bundled together, meaning you see the total cost but not necessarily the individual costs. Bundled tariffs include ancillary services, stranded cost recovery and true ups. Here's an explanation of those expenses and why your energy company may charge them.
Ancillary services are services related to the production of energy but that are not directly responsible for generating power. For example, in addition to providing electricity to customers, an electrical power company may also deal with other services such as scheduling and dispatching workers to maintain the power grid, overseeing the control of the voltage going through the lines, and watching the frequency controls of the system.
Traditionally, these services are not included in the charge you receive for consuming electricity. However, in order to take care of these services, the power company incurs a lot of expenses, and rather than rolling them into the basic charge, it includes them as part of the tariff. Arguably, wind and solar energy have fewer ancillary services, and if you are looking for a power company with lower tariffs for ancillary services, you may want to consider working with a company that meets a lot of its power needs with alternative sources of energy that require few ancillary costs.
Stranded Cost Recovery
Another relatively popular type of tariff that some energy companies charge is a stranded cost recovery tariff. This tariff is designed to cover stranded costs incurred by energy companies. Basically, a stranded cost is when a power company has old debts, often for equipment that is out of date. Those costs are called stranded costs because they have the potential to prevent the power company from diving into new pursuits or purchasing new equipment.
In contrast, if a new energy provider popped up, it could easily invest in new equipment, as it isn't loaded with debt like the other company. As a result of the new company's innovation, many customers would switch companies. This reality can make competing in the energy arena difficult. However, stranded cost tariffs exist to level the playing field.
These tariffs are sometimes just charged to customers of energy companies with old debts or stranded costs. In other cases, everyone in an entire area has to pay stranded costs, regardless of which energy provider they work with.
True Up Tariffs
Finally, some of the tariffs on your energy bill may be related to true ups. True ups are an accounting concept, and they refer to when an accountant or bookkeeper makes an adjustment to the books to account for the inaccuracy of an earlier projection. For example, imagine that an energy company anticipated some of its ancillary costs being a certain amount of money, but at the end of the year, the costs ended up being much higher or lower. An accounting true up adjusts that amount, and then, the cost is passed on through a true up tariff.
If you want to know more about the tariffs you see on your energy bill, contact your energy provider directly. The tariffs and their structure can vary from state to state, and different companies may also explain tariffs differently on your bill. However, a rep from a company, such as those at Lumo Energy, should be able to explain exactly what you are paying and why.