HYDRO Tasmania will no longer be allowed to "gouge" energy prices after the government intervened to regulate the market yesterday.
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However, there is no indication what that step will mean for Tasmanian power users, with Aurora Energy allowed to "recover all its costs".
Aurora has been losing money at a "financially unsustainable" level, which the government said yesterday was due to Hydro overcharging it.
The conflict between the companies began at least a year ago, but Premier David Bartlett said it was only after the election that the extent became clear.
"The new information we received following the election was in the form of an Aurora corporate plan which essentially showed this was financially unsustainable," he said.
"Put simply, we need to ensure Aurora isn't required to buy wholesale power at a higher price than it can possibly sell it."
Opposition energy spokesman Peter Gutwein ripped into the government in Parliament yesterday for going back on its election promise to cap power price rises.
"Tasmanian electricity users are $20 million worse off but this statement provides them with absolutely no information as to why that is the case," he said.
"You talk about the long-run marginal cost of electricity. That is exactly what Hydro and Aurora were arguing in their submissions to the Energy Regulator. There is nothing new in that regard."
The government's plan means:
The price Hydro can sell power to Aurora for will be set by the Treasurer.
That price has to be "fair and reasonable", as determined by the Treasurer.
The Economic Regulator will allow Aurora to recover all its costs when selling energy.
A spokeswoman for Hydro Tasmania said the company would engage with the Treasurer as he prepared regulations to specify the energy price.
"It should be noted that as Hydro Tasmania said in its submission to the independent Economic Regulator last month, the contract prices paid by Aurora to Hydro Tasmania were consistent with the Regulator's determination. These contracts were negotiated commercially," she said.
In announcing the move to regulate the energy market, Mr Bartlett said that a genuinely competitive energy market was yet to develop within the state.