Gas prices will be capped for a year in an effort to restrain runaway electricity price increases, after a last-minute meeting of parliament before the year's end.
Treasury forecasts the caps will wipe $230 from expected price increases to the average household electricity bill next year.
But the ABC estimates the average household bill will rise by $700 by mid-2024 compared to June this year, based on Treasury figures.
Treasury had warned that electricity prices were set to rise a painful 36 per cent next financial year, on top of the 20 per cent price hike Australians will have already endured this year, due mostly to the global shocks caused by Russia's invasion of Ukraine.
Crossbenchers question whether price cap is too generous
The government has passed a package that takes the extraordinary step of capping gas prices at $12 per gigajoule, which Treasury expects will limit electricity price rises next financial year to 23 per cent.
Several crossbench MPs said that a $12 price limit was arguably still too generous, noting that gas was selling at around $9.20 before the invasion of Ukraine and extraction costs had not increased in that time.
"Arguably setting a price at $12 is too high and will slow down our transition away from gas because it will artificially make it too profitable, just like the [Ukraine] war," Goldstein MP Zoe Daniel said.
"Allowing Australian manufacturers to access energy at a reasonable price will not break these companies."
Treasurer Jim Chalmers said the price had been landed on by the competition watchdog based on the costs of production and a reasonable return on capital, though he acknowledged it was still a historically high domestic price.
The government's "price relief plan" will also deliver the most vulnerable Australians $3 billion in relief for their power bills, to be jointly paid by the Commonwealth and state and territory governments.
"It's written in black and white – this legislation will take some of the pressure off power bills," Mr Chalmers said.
Price caps on coal will also be imposed by the states, with the coal-rich NSW and Queensland governments agreeing at a meeting of national cabinet last week to impose a $125 per tonne price limit.
Coal companies whose operating costs exceed that price limit will be compensated to ensure supply stability.
The legislation passed with the backing of the Greens and senators David Pocock, Jacqui Lambie and Tammy Tyrrell in the senate.
In return for their necessary support, the Greens won a third measure to ease power prices longer term: a financial assistance package to help households and businesses to electrify their heating and cooking equipment, and move away from gas sooner.
That last-minute deal will be negotiated in the months to come and included in the government's May budget next year.
The Grattan Institute's deputy energy program director Alison Reeve says the electrification package will be insulation against future price instability — though she says the package will also need to improve energy efficiency, as there would be little benefit to switching people over from one inefficient product to another.
"One of the things that has been a bit of a risk here is that we deal with the current crisis but leave ourselves open to crises in the future," Ms Reeve said.
Relief, but cost pressures will continue to build
The government admits the price caps won't be enough to flatten prices in the year ahead.
The Treasurer said price caps would reduce next financial year's electricity price rises by 13 percentage points – still a 23 per cent price rise on this year.
Treasury has not revealed its full modelling, but the ABC estimates based on figures given by the department that it will mean a $700 increase for the average household, from an implied annual cost of $1,474 as at June 2022, to an annual bill of $2,176 by the end of next financial year.
Treasury says the price caps will cut that bill by $230.
It suggests the average household was forecast to pay $2,406 next year without intervention and before any bill relief.
The $3 billion in energy bill relief for people receiving Commonwealth income support will go some way to covering the remaining cost increases for those most exposed.
That support won't drip through until at least April, as the Commonwealth works through how to deliver the program with each of the states, but it is expected to be delivered directly through power bill reductions.
The federal government says by doing so it will also reduce inflation by 0.5 per cent, as opposed to delivering cash handouts that could further fuel inflation.
The opposition and the gas industry argue price caps will drive costs up further in the long term, as companies withdraw supply from the domestic market, and say the only solution is to bring more gas online.
Shadow Treasurer Angus Taylor said the government's energy relief package was "shambolic" and would harm the economy without making power prices cheaper.
Meanwhile, the number of people struggling to pay their power bills is rising, according to the Australian Energy Regulator, which reported in its most recent market update an 11.7 per cent increase in electricity customers on financial hardship programs.
