TiP

This Sunday morning I have been reading two very different publications on a similar electricity topic.

One is the Sydney-based “Sunday Telegraph,” which in typical style has a news story that “families suffering from raging energy bills could soon be forced to endure power blackouts as part of a strategy to rein in prices.”

The “Telegraph” claims that an interview with ACCC chairman Rod Sims reveals he will “strongly” push State governments to lower reliability standards, “which could lead to more blackouts,” in a bid to arrest rising bills.

This, says the “Telegraph,” will put the ACCC “at war” with the network power companies, “who insist families have come to expect reliable electricity supply and will not cop frequent outages.”

In a particularly outrageous sentence, the “Telegraph” adds “Sims said NSW families had been duped in to the massive power bills by energy networks who pass on to consumers the cost of upgrading their equipment to meet stringent government standards.”

One could go on for a very long time about what is wrong with this sentence alone – not least that I doubt it even paraphrases what Sims said – but it is bettered by this preface to another paragraph: “despite the radical move to thrust NSW back in to the dark ages.”

This is reinforced by an editorial entitled “The Dark Ages” in which in the editor, Neil Breen, asserts “a combinatiuon of unwieldly green schemes and an over-emphasis on avoiding blackouts at all costs has blown energy bills out of all proportion.”

“Sceptical consumers,” the editor asserts, “suspect much of this work is being carried out to make companies look better to potential buyers.”

People who know the electricity business, of course, will just roll their eyes, shrug and say “well, what do you expect?” from the tabloid media, which only a few years ago were making a cottage industry out of feigned rage over each new report that showed some reliability performance was slipping.

The second publication I have been reading is the bulletin of the Electric Energy Society (EESA) in which president Robert Barr also focuses on “the relentless upward pressure on electricity prices,” which he attributes to “national and State green schemes, the uncertain generation investment environment, the need for large-scale network investments and the concentration of retail ownership.”

Everyone has their own demonology in this debate.

“Is the current large capital spending on networks justified?” asks Barr. “In one sense it is because we need modern and reliable networks that the capital spending is providing. On the other hand, the sheer size of expenditure forces up unit construction costs, adding to the largely unwanted jumps in electricity prices.”

Barr argues that what is needed is a long-term view (by governments and regulators) of building networks to meet customer needs. “Good industry regulation will provide for a network just adequate to meet the acceptable needs of the average customer.””

EESA wants the regulators to have a hard look at themselves.

Barr says: “The capital spent on networks over the past decade resembles a feast to famine mindset. Regulators have oscillated between ‘drive the system harder’ and (building) ‘low risk’ networks immediately.”

He asserts that regulators live in fear that they will be held responsible for forcing networks to cut back on capital projects, leading to power disruptions.

“There is a fine line,” he says, “in balancing the risks of cutting back capital spending and maintaining adequate levels of reliability and customer service.

“There are long time lags between the spending and customers receiving benefits – (which) are not always directly measurable but appear in the form of reduced risks of blackouts and loss of reliability visible only to planners and system operators.”

Something else that I have been reading this weekend is the draft report on the Tasmanian electricity system commissioned by the State government and chaired by John Pierce, the chairman of the Australian Energy Market Commission.

(While this report is obviously focused mainly on the island State, it has quite a lot in it about the east coast power sector and is worth a read. The consultation process is due to wind up in March.)

The Pierce committee notes with respect to network reliability: “In distribution, reliability is measured by looking at the number of interruptions, their average duration and the average total time every year that customers experience a lack of supply. Measures of reliability are susceptible to contingency events such as extreme weather.”

Emphasising that distribution reliability measurement is also affected by factors like the size of supply areas and the length of feeder lines, the committee points to the Energy Supply Association 2010 yearbook data – which show (for mainland east coast States) that NSW has a SAIDI (system average interruption duration index) of 197.6 minutes versus 186.8 for Victoria, 155.1 South Australia and 345.2 Queensland.

The SAIFI (system average interruption frequency index, measuring how often a customer on averages loses supply) has NSW at 1.7, Victoria at 1.8, SA at 1.5 and Queensland at 2.6.

Expecting tabloid media editors and reporters to get their heads around this stuff may be asking a lot.

Ross Garnaut, in writing his last magnum opus on federal carbon policy, included a chapter on “transforming the electricity sector,” in which said this about reliability: “Several States have recently adopted higher reliability standards for networks. These require additional capital investment to ensure that the standards can be achieved within the regulatory requirements.”

(Not, “Sunday Telegraph” please note, an effort by the networks to gold plate themselves to attract investors in a hypothetical sales situation.)

Garnaut took the view that “the setting of reliability standards and service requirements has not been subject to institutional or regulatory reform.”

Most States, he said, had used a “relatively crude and deterministic approach” to dictate reliability requirements.

Leaning heavily to the populist side, he added: “There is no opportunity for consumers to make their own choices on what they are prepared to pay for greater reliability when standards are already high.”

This last bit is arrant nonsense, of course, but there is a solid case for State governments reviewing the standards and making decisions about what they believe consumers want and can bear.

This would have an impact on future regulatory determinations about network capex – ie beyond 2014, the horizon for the determinations already in play – but, even so, the politicians and the journalists have to understand that distributors will need to go on spending billions in the second half of the decade to meet any growth in power demand (including peak demand) and to replace aged assets (a very important constituent of maintaining reliability).

The previous east coast framework for network regulation (replaced by the existing arrangements in 2006-07) was driven by a focus on providing low prices for consumers at the expense of prudent, gradual and timely development and it delivered substantial under-investment – which is why the networks have been playing catch-up in the 2009-14 determination period and the consumers are copping big increases more or less in one hit.

EESA’s Robert Barr has a point, I think, when he calls for a regulatory approach that looks at where networks need to be in five, 10 and 20 years in order to stabilise the distribution component of power bills in the long term.

We haven’t had many cicadas in NSW this summer because it has been so cool and wet, but the shrilling of the media over power bills almost makes up for them.

The danger lies in poll-driven pollies allowing themselves to be influenced by this noise and delivering still more dumb outcomes.

On the other hand, there is enough noise out here now (informed and uninformed) to suggest that they grasp the issue of reliability and do some remedial policymaking.

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