A report released by the independent Institute for Energy Economics and Financial Analysis (IEEFA) on Wednesday accuses electricity networks of “unearned supernormal profits” of $11 billion on top of “allowed” profits of $16 billion during the past nine years.

“The excessive supernormal profits were caused by weaknesses in the regulatory regime in favour of networks,” the report says.

But governments can improve transparency around network profits and reduce the network component of power bills.

Under the regulatory framework governing Australia’s electricity providers, the networks are entitled to make a fair profit for shareholders, who include some state governments as well as local and foreign stakeholders.

The Australian Energy Regulator (AER) allows a network price, which is passed on to customers via retailers as a big chunk of the power bill, to compensate for long-term investment and risks.

Consultant Simon Orme said the “supernormal profit” for 2022 alone was $2 billion, some $80 to $400 per customer depending on the network area, and 2.5 times the levels necessary to compensate shareholders for risk.

“Families and businesses are already experiencing power bill shock from higher retail prices, and the persistent and large extra network profits are making this worse than necessary,” Mr Orme said.

“The extra profits are reducing energy affordability and adding to economy-wide inflation.”

The report found the level of profits does not reflect “gold plating” or overinvestment, as they are calculated after all investments in new or replacement assets.

Nor do they reflect higher productivity, lower financing costs or innovation gains, IEEFA says.

Without changes such as independent monitoring and new performance requirements for AER, excessive supernormal profits will continue for the foreseeable future, Mr Orme warns.

This means wealth from electricity customers will continue to be transferred to shareholders and revenue diverted away from investment in new transmission and storage capacity, the report says.

According to the networks’ advice to the regulator, keeping the rate of return approach unchanged means investment certainty under the framework.

Energy networks say they are deeply aware of the cost of living pressures and want to attract investment to connect cheaper renewable sources of power.

IEEFA’s analysis used AER’s profitability data from the 18 monopoly electricity networks in the national electricity market.