More questions than answers

First an apology: This is Power blog has been off air since last Friday thanks to a problem at the IT company that is the server for this website, a substantial glitch that occurred while it was upgrading part of its system.

As a result, neither you nor I could access “TiP” until yesterday.

Meanwhile the turbulent state of the energy debate has been churning away.

Most of the current attention, quite reasonably, has been on resurrected Prime Minister Rudd’s decision to can the carbon price a year earlier than Julia Gillard planned, but I would like to go back to his National Press Club speech in Canberra and the bits in it about energy.

First of all what did Rudd actually say?

In the context of reporting on four (separate) meetings with the Business Council and the ACTU in a fortnight, he listed “seven broad areas of necessary policy work,” the first of which was energy policy.

“Australian electricity prices are too high by global standards,” he said. “This affects the competitiveness of all firms large and small. Of course, it also affects individual consumers.”

(As it happens, Energy Minister Gary Gray released in May the latest energy review of the Bureau of Resources & Energy Economics, which, using purchasing power parity modelling, shows that Australian average household electricity prices are still in the lowest quartile of a 30-nation OECD ladder. The average, of course, includes Western Australia – where prices are still well below being cost-reflective.

(The Productivity Commission, in its report on networks tabled in federal parliament in late June, see page 231, makes the point that comparisons are “somewhat sensitive” to the use of exchange rates – with one parameter {used by the major users in their lobbying efforts} they are 33 per cent higher than the EU average and with another they are on a par with the European average.)

Rudd added then that the carbon price represented less than 10 per cent of these bills but he is now spruiking a $380 savings for householders resulting from his switch to emissions trading.

This is for 2014-15 only, his Treasurer (Chris Bowen) has had to point out and it represents more than the impact of the tax on energy bills.

The tax has added about $3 a week to residential bills (just over $150 a year) and $1.10 a week to gas bills ($57).

The costs of the RET and of over-the-top rooftop solar PV “bonus schemes” remain in place.

At the Press Club Rudd also said: “The primary reason for the hike in electricity prices appears to be the current system of national electricity regulation which has allowed excessive rates of return for publicly-owned transmission and distribution utilities, which have become cash cows for various State and Territory governments.”

(To which one should respond that, yes, almost the last act of Julia Gillard’s regime was to table the very large PC report – plus a 66-page government commentary – which identifies (a) what all governments collectively did wrong with the last round of regulatory reforms that took effect as Rudd’s first government came to office, (b) the steps now being taken to ensure that future regulatory determinations deliver “moderate” price increases and (c) the gains that can be made through rolling out smart meters, introducing time-of-use charges and deregulating retail prices.

(Smart meters and ToU charges are tricky political territory – which is why Julia Gillard was never prepared to speak up strongly for them even as she attempted to pinch the cost benefits promised by the Productivity Commission post their introduction as a promise for 2014.)

Finally, Rudd said: “Reforms are needed for the supply of competitively-priced gas for Australian businesses and households.

(Two days earlier his Energy Minister had told the Committee for the Economic Development of Australia that “We know that gas prices on the east coast would be going up irrespective of the development of the LNG industry. This is due to the increasing costs of developing natural gas, whether that be onshore or offshore. A gas reservation policy could not lead to lower gas prices or more gas. Calls for intervention in the market only serve to dampen any appetite for the very investment needed to bring on new supplies. What is needed is not intervention but the removal of impediments to getting gas out of the ground.”)

Looking at media coverage of the speech, I see the chief political correspondent of the “Australian Financial Review” believes that “the push to boost coal seam gas” will include “less environmental regulation, pushing New South Wales to fast-track approval of two major projects and leaning on the Victorian government to lift a CSG exploration moratorium.”

One doesn’t have to wonder how the Greens will react to this.

Pushing NSW and Queensland Coalition governments to privatise their networks is also being touted as step along the path to lowering prices – and both governments have made it clear that they will not act in this area without a mandate from their voters at the next State elections.

The Energy Supply Association bobbed up to remind the Rudd government – and, one would think, specifically the reincarnated Prime Minister – that “the ultimate solution to lower energy bills is continued reform of markets to increase competition and empower consumers with more choice and better incentives to be smarter in the way they use energy.”

This is true, but it won’t alter the fact that there is an ongoing need for the replacement of ageing network infrastructure – outbursts on prices are nothing compared to outbursts on blackouts – and that no government is going to leap to undo reliability standards, even though the ones now in place are though to be more than is really required.

As for “gouging” of customers by NSW and Queensland taking about $2 billion a year in tax equivalent payments and dividends from networks, what is the Prime Minister’s solution for income to be foregone?

The money is spent on other community services – and, in the case of Queensland, partly in funding the expensive arrangement to keep power bills the same in the rural and regional areas of his home State as they are in the south-east corner where he lives.

The Queensland outlay on this will cost about $2 billion cumulatively from this financial year to 2015-16.

The Press Club speech raises an interesting question: is Rudd prepared to step up to the plate laid down by the Productivity Commission and commit to working with the States to drive the east coast roll-out of new metering technology, new tariffs, the necessary assistance for low-income people who will be hurt by ToU arrangements and full-scale retail price deregulation?

If not, he lays himself open to the Coalition’s charge that his Press Club appearance was “more flim-flam.”

As for coal seam gas development, Gary Gray has already provided the government’s get-out-of-jail card for the election campaign in the shape of the BREE report on east coast gas that is not required to be delivered until the year-end.

All in all, it seems to me that Rudd at the Press Club raised far more questions on energy issues than he provided answers, even taking in to account his subsequent step on the carbon price.

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