Archive for March, 2014

Down to Earth

This is the weekend each year when gesture politics about energy reaches its apogee via “Earth Hour” and the preferred source of news — the television media — feast on the visual effects of the lights being turned out on the Sydney Harbor Bridge, the Opera House and other global landmarks amid much pious noise about “saving the planet.”

It would be ever so much more intelligent and humane, of course, if we could at least devote one weekend a year to considering the plight of the 3.5 billion people around the world who lack adequate access to energy, including 1.2 billion children.

And it would be much more useful, here on the east coast of Australia, if we could devote part of the weekend to understanding how much more efficient we have become in using electricity and to the causes of the fall in power demand since 2010. Like, for instance, the fact that an air-conditioner bought today uses 30 per cent less energy than one bought five years ago.

We must be around the 15th anniversary of the introduction of mandatory energy performance standards (MEPs in the jargon) for fridges and freezes, a program that has since been extended across the range of residential and commercial electric appliances and equipment while other regulations have applied better efficiency standards to new buildings.

Energy researcher Hugh Saddler (see his “Power Down” essay) estimates such measures have reduced demand for electricity in Australia by more than 13,000 gigawatt hours annually — which doesn’t mean a damned thing to the hordes doing the the gesture thing for “Earth Hour” but is actually the equivalent of switching off demand in South Australia full stop.

Saddler also points out that, if power demand in this country had continued to grow at its annual average rate up to 2005, national consumption today would be 37,000 GWh higher, the output of about 5,000 megawatts of baseload, coal-fired capacity — say both the Loy Yang power stations plus Hazelwood in Victoria or both Bayswater A and Eraring power stations in New South Wales.

Now not everything about the fall-off in power consumption is good news. A not-insubstantial chunk of it is about the erosion of the manufacturing sector. For example, the Port Kembla steelworks, the Kurri Kurri aluminium smelter and the Clyde oil refinery, all in NSW, are prominent recent closures.

Saddler calculates that these shuttered plants alone have contributed to cutting electricity consumption by 3,600 GWh a year. That’s the equivalent of switching off the whole of the Northern Territory for good — twice.

The same TV stations carrying on this weekend about “Earth Hour” line up outside large energy intensive factories shutting down to produce sad stories about the job losses. They and radio stations (especially the ABC) give much airplay to manufacturers warning that we stand to lose 100,000 jobs in Australia in the rest of this decade if we don’t reduce their energy input costs.

It’s too much to expect any of this media mob to point out this weekend that behind the “Earth Hour” shenanigans are radical campaigners who want to see Australia impose a substantial carbon tax that would drive wholesale power prices to a level that would shut down coal and gas plants in favour of renewables. Such taxes would need to be four and five times the level of those imposed by the Rudd/Gillard governments, a move so deplored by a majority of voters that it helped to have them booted out of office.

There is an acerbic piece by Bjorn Lomborg in “The Weekend Australia” today, which at its centre lambasts “Earth Hour” as a feel-good event that is a distraction from the world’s real energy issues and amusingly argues that the carbon dioxide emissions from all the candles lit around the world during this event may be higher than if the lights were left on.

I am disinclined to laugh about “Earth Hour,” however, because of the deadly serious issue of global energy poverty.

This point, as it happens, is in the international news at present because major companies, such as Peabody Coal and BHP Billiton, have been using the plight of 1.3 billion people, who have no access to electricity at all, to bolster their arguments for ongoing conventional power developments.

Environmentalists have come rushing back to claim that there are solar and wind alternatives to alleviate the energy poverty of these people. They seem to be completely unable to understand that they talking of a mass market where the need is for 24/7 provision of light, comfort and cooking fuel not a dinky little solar PV array on the roof of a thatched hut that shuts down when the sun sets.

The argument that the poor should just wait around until energy storage reaches a level where local grids can do the job also overlooks the fact that there are four million people a year, most of them children, dying from the effects of energy poverty.

Like everything else to do with energy supply, this is not a black-and-white argument; the financial requirements of building enough conventional power stations and delivery grids to service the needs of all the world’s poor would be very large — what the companies are arguing, although they don’t say so, is that many of these people are crammed in to urban environments where augmentation of existing power supply would be of help. This still leaves several hundred million rural people literally out in the cold, relying on dung and twigs and the like for heating and cooking and ubiquitous candles for light.

The issue is huge and it deserves far better attention than it is getting — which, in my opinion, makes the whole yuppie gimmick of “Earth Hour” all the more offensive.

The sums that are being spent on populist, feel good activities, such as subsidising solar and wind power, are themselves enormous. Lomborg, in his commentary in “The Weekend Australian” today, asserts that in 2012 alone wind and solar were subsidised to the tune of $60 billion around the world to generate just 0.3 per cent of global energy from wind and 0.04 per cent from solar.

What would you get if you invested this amount of money in innovation is the gist of his commentary?

I’m all in favour of investment in energy R&D, but let’s not lose sight of the plight of the armies of poor around the world, please.

I’d very willingly pay the the equivalent of the Rudd/Gillard carbon tax each year if I thought the money was going to be spent on just the energy-starved people of Papua New Guinea, East Timor and the Pacific Islands, to name a very few.

And, by the way, do we know how many indigenous Australians are living with inadequate or no energy supplies in the Outback?

When we talk about “energy poverty” in this country we are focussing on low-income folk in the urban areas who can’t afford today’s power and gas bills. They need help, but there are other Australians out of our urban sight and mind who are much worse off.

Meanwhile, Australia’s population continues to grow by a Queanbeayan plus a Canberra a year, roughly 400,000 people, and a Melbourne a decade. By mid-century it is expected to have risen from 23 million to 38 million and our major cities to have doubled in size.

This poses a significant local infrastructure challenge and not just one for energy supply.

Trying from here to mandate the solutions in mid-century seems to me a nonsense, but we need to be conscious that the policies and strategies on which we are now embarking — eg the national energy white paper and the Queensland 30-year electricity strategy — are going to be of considerable importance to those living in Oz in 2050.

How well we look after ourselves, however, is only one measure of our moral worth.

We, the North Americans, the Europeans and the wealthier nations of Asia also have a responsibility to the multitude of poverty-stricken people sharing the planet.

The fact that “Earth Hour” is our preferred focus this weekend is not to our credit.

Wrong way; go back?

One of the world’s best magazines is “Foreign Policy,” a bimonthly review of global politics, economics and ideas published by the Washington Post Company.

Its website (www.foreignpolicy.com) provides a more frequent access to the sort of high quality journalism that is seldom available to us here in our mainstream media.

Right now “Foreign Policy” has an energy commentary that should be read by a lot of people down here: it’s an article entitled “Germany’s Green Elephant.”

It explains why, as a result of the energiewende policy, it now makes more economic sense in Germany to run coal-fired power generation rather than natural gas.

The author, senior reporter Keith Johnson, writes: “Energiewende was meant to give Germany an energy sector that would be cleaner and more competitive, fuelling an export-driven economy and helping to slash greenhouse gas emissions.”

But, he points out, the policy is floundering.

German emissions are rising.

High electricity prices keep on rising.

Business people wring their hands over the costs.

The European Union is concerned that Germany is subsidising its big industry with rebates.

Utilities are bleeding money, slashing investments and shutting down power plants.

This year Germans will spend 23 billion euros propping up solar and wind power, very near double what they were shelling out just two years ago.

The Merkel government (now in a new guise after last September’s elections) promised back then that the surcharge supporting green power would “never” be bigger than 35 euros per megawatt hour.

This year it will go past 60 euros.

Despite all this, the green movement can still put large numbers on the streets of Germany to shout for green power. They did so last weekend.

Back here, as the debate on the renewable energy target rumbles on, the green power boosters are pointing to an “Essential Report” poll showing that 39 per cent of voiters believe the RET is “about right” and 25 per cent believe it is “too low.”

Those reporting this don’t add that the same research shows these voters support the Coalition (which is reviewing the RET) over Labor (which wants to cling to the current scheme) by 44 to 37 per cent with the Greens getting nine per cent.

Nor that less than one in three of these Labor voters think the RET is too low.

Nor that only 21 per cent of those polled rate “climate change” as a major issue of concern versus 25 per cent deeply worried about unemployment.

So far as I can see, none in the media have reported the assertion by the Minerals Council of Australia (in its submission to the federal government on the upcoming national budget) that the direct costs of the RET to the mass market and business was $1.5 billion in 2011, $1.6 billion in 2012 and, over the life of the scheme, will transfer between $20 billion and $30 billion from energy users to “producers of favored technologies.”

The MCA adds that the RET and other green schemes accounted for 14 per cent of the power bill of a typical large industrial user in New South Wales in 2012-13, with the Rudd/Gillard government carbon tax adding a further 16 per cent.

The council’s argument is that “Australia cannot afford to pursue policies that undermine its international competitiveness and standard of living.”

It adds: “Even Germany is now making cheaper energy a priority.”

One of the really big problems there as well as here is the inability of the public debaters to walk and chew gum at the same time – that was the accusation against accidental US President Gerald Ford in case you’re wondering.

Harry Kenyon-Slaney of Rio Tinto Energy, in his “Energy State of the Nation” address last week, put things well, I thought: “The debate about energy is not simple. There are no easy solutions. There are trade-offs involved and compromises required.”

In this respect, to be blunt, the Australian public is illerate – a situation not helped by the tendentious nature of the propaganda they hear – and this is why we get simultaneous reflections, via opinion polls, of support for green power and high levels of angst over prices.

Those who, at this point, want to leap in to point a quivering finger at network costs, should bear in mind that nothing upsets the great Australian public more than actual loss of power – see the reactions in the Northern Territory to the recent 12-hour blackout in Darwin as a result of network equipment failure as an example.

The real problem with what has happened with network charges is that a policy decision was taken to lump a huge expendfiture in to a relatively short space of time (2009 to 2014) rather than to spread the outlays over 10 or 12 years.

These capital costs have to be incurred to replace aged assets, to meet peak demand (look at the summer pressures in Victoria and South Australia to appreciate that this issue is still very much with us), to meet reliability requirements imposed by legislators and to cope with the impacts of the dash for solar power imposed by politicians without due care and attention.

The cost issues upsetting the MCA and others in business are exacerbated by the green schemes imposed by Labor governments at the same time they were presiding over the network capex outlays.

I find it fascinating to watch public and political handwringing over, say, the winding back of aluminium industry activities in this country – go back and read the media coverage of the decision to close the Point Henry smelter in Victoria – and the inability to join the dots to what that industry is saying about its energy bills.

Here’s the Australian Aluminium Council in its submission to the energy white paper: We use 12 per cent of the power produced in the NEM. We have an exposure to prices that is greater than any other industry sector. In highly competitive global markets, the cost of electricity is a critical factor. The RET is a significant impost. On average, it adds $40 per tonne to the cost of aluminium.

The AAC says the RET costs the industry $80 million a year.

Playing with the MCA figures, I guess this is part of an aggregate impost on business across Australia of about $750 million a year from this one scheme.

It’s anybody’s guess what the Warburton task force will say to the Abbott government on the RET.

The green lobby clearly fears the worst.

But the federal government can’t just wipe the scheme; the investments made in good faith under today’s legislation have to be protected (“grandfathered” in the jargon).

The related costs will roll on over the years to 2030.

What’s really at issue is the capacity of the federal and State governments to turn the current mare’s nest of energy and carbon abatement policies in to a coherent, efficient whole – rather than the hole that we are in today!

Kenyon-Slaney’s cry last week was for “efficiency to be the priority for us all, industry and consumer alike.”

Wherever you stand in the energy debate today, I defy you to claim that what we have, after a decade of political intervention, is efficient.

Which brings me circling round to the “Foreign Policy” article.

It points out that the new man in charge of making energiewende happen in the Merkel government, energy minister Sigmar Gabriel, is warning of the risk of “de-industrialisation” if Germany continues on its current path.

“Berlin is trying to figure out how to spread the cost of energiewende more fairly without kneecapping industries that drive the economy,” says the writer.

Well, that’s the challenge here too, isn’t it?

Writing here and in “Business Spectator” in the past week, I reported Martin Ferguson conceding that politicians have “at various times” lost sight of basic principles in designing energy policy.

For us, the tipping point on all this is now.

The Germans may well be over the rise and on the downhill slope.

Do we want to follow them?

Star in the West

References to the golden age of gas in Australia tend to come with a sneer, often a smear and not infrequently a snarl, from a number of quarters.

There certainly are a range of issues relating to gas and affecting the domestic scene that remain highly contentious, but the LNG activities, it seems to me, deserve better appreciation than they often get.

One arena where LNG will shortly take pride of place is Perth’s cavernous Convention & Exhibition Centre when the Australian Petroleum Production & Exploration Association convenes its 54th annual forum in two weekends’ time.

Perth, in fact, will celebrate LNG twice in the next two years.

First, with the APPEA event, with more than 3,000 delegates and 12,000 square metres of exhibits, and again in 2016 when the West Australian capital hosts the global LNG18 conference, which could be still bigger.

As WA Premier Colin Barnett points out (in an introduction to the brochure promoting the 2014 APPEA conference), the West now accounts for seven per cent of the world’s LNG trade – and 81 per cent of Australia’s annual production of the fuel.

While much eastern Australian attention is focussed on the developments at Gladstone, WA is home to $112 billion worth of current LNG projects, including the massive Gorgon venture, and there is a lot more, under the right investment conditions, that it may contribute.

Barnett highlights the fact that, apart from the extra-ordinary gas deposits in the State’s offshore waters, WA has onshore shales and tight rocks that have the potential to deliver considerable social and economic benefits, in particular the resources of the Canning basin, which covers 430,000 square kilometres (that’s six Tasmanias) onshore plus another 70,000 square kilometres under the sea.

The Canning, which lies 2,000 km north of Perth, is thought to hold some of the richest shale gas deposits in the world.

If it was located in the US, it would be poked full of wells like a pincushion, but it is also a lonely locale and its future can only be a matter for conjecture today in an Australia that is struggling to comes to terms with its role in the energy world.

Suffice to say that the Canning basin is reckoned to have 10 times as much gas as the area being exploited by Chevron and partners in the Gorgon project.

The fact that global demand for LNG is expected to double over the next 10 to 15 years is raised as a reason why the Canning could become a big gas production province – but this is only part of the picture.

As Rio Tinto’s Harry Kenyon-Slaney pointed out at the “Energy State of the Nation” conference in Sydney a week ago, the world’s economic centre of gravity is in the process of shifting from Europe and America towards Asia.

This is because the Asian middle class is expected to increase six-fold in a generation, creating an urban population some 530 times that of Sydney today, with a giant appetite for electricity that is going to require a tremendous supply of energy from power stations using coal, hydro, nuclear and gas resources – and, yes, a great deal more electricity generated by wind, solar and other alternative sources, but the heavy lifting will be done by conventional power stations.

We would really have to muck things up at home for areas like the Canning (and other gas sources in Australia) not to have a big future in this environment, notwithstanding the cat-calling of today’s radical environmentalists and anti-capitalists.

Looking around us, however, one cannot help being conscious that the Argentine road is not so far away for an Australia that spends an inordinate amount of time focussing on trivia and on the ideologies of a minority of the population in a political environment where populism too often holds sway.

It’s an environment where our capacity to take the long view is too seldom on display.

Consider this: By the time we reach the 2060s and the centenary of the first oil wells being drilled on the West’s Barrow Island, the launching pad 50 years ago for the State’s current energy stardom, how many waves of gas investment will have washed across our shores to service global electricity needs that are expected to be 69 per cent higher than now by 2035 alone?

Or will we let this future slip from our grasp?

Right at the moment, the middle of the century is a long, long way away and the relevant question is whether just the second LNG wave can be prevented from slipping from our grasp?

Chevron Australia CEO Roy Krzywosinski, one of the keynote speakers at April’s APPEA conference, makes the cogent point that it is not enough to have an abundant resource and proximity to a big market.

“It takes decades to achieve an alignment of the stars, if it happens at all,” he says. “We need to be adaptable and realistic (to provide the right investment environment).”

In the global LNG race, says Krzywosinski, local industry has to work smarter, more efficiently and more competitively while government policy must be conducive to driving up productivity and driving down the high costs that will stifle new ventures.

Australia, he argues, has the potential to be the world leader in LNG production and Perth can become a global LNG technology centre of excellence if we can keep the gas pipeline flowing.

This potential was also on the mind of BHP Billiton CEO Andrew Mackenzie when he spoke at CERA Week in Houston at the start of March.

Mackenzie highlighted the contest between coal and gas in particular for the current and emerging Asian market, pointing out that the cost of making electricity from gas today is more than double the cost of coal-fired generation, but in particular he underscored that energy development is a matter of governance more than geology.

“What is above ground matters more than what is below,” Mackenzie said.

This applies to the short and medium term future of gas, for domestic use and export, in Australia but its force lies especially in how well this country can plan and manage its LNG role over decades, not just from now to 2020.

If, as I do, you believe that the energy white paper should not be about what happens in the next few years but our strategic approach over the next 2-3 decades, then Mackenzie’s maxim is very much to the point.

Hopefully, it’s a point that will be reinforced at the upcoming APPEA conference in time to have an impact in Canberra for the present exercise – which sees a green paper currently being written for delivery in May.

The Ferguson view

A year to the day since he announced his resignation as federal minister for resources and energy, Martin Ferguson shrugged off jet lag to provide the “Energy State of the Nation” conference with a review of the current state of play.

Landing from London en route to Melbourne, Ferguson came to the Energy Policy Institute conference in central Sydney to say it was a “perfect time” for him to reflect on the direction of energy policy.

He started by paying tribute to Warwick Parer, a predecessor as federal resources and energy minister (in the Howard government frrom 1996 to 1998) who died this week, saying the energy market review he chaired in 2002 (after Parer had left the parliament) continues to be “a touchstone for reform.”

As for Ferguson’s own big contribution, the Labor energy white paper handed down at the end of 2012, he is of the view that it remains relevant and that this will be reflected in the document the Abbott government plans to release at the end of this year.

Even in the 18 months since he produced the white paper, Ferguson acknowledged, the pace of change in the energy sector has continued to accelerate, noting that this is a global phenomenon (not something that you would necessarily glean from reading the local media).

Ferguson said the recent power blackout in the Top End highlights the fragility of Australian energy security and the consequences if policy settings are not effective.

(I have a bit of a problem with this perception. The 12 March breakdown on the Darwin/Katherine grid was triggered by a circuit breaker malfunction during routine maintenance. The failure blacked out Darwin itself for several hours and has led the Territory Treasurer, David Tollner, to say that there is an urgent need to reform the electricity network, although I am not at all sure, even at 5,000 kilometres remove from the scene, what the link actually is between a maintenance failure and the reform process. The incident has led to the Darwin Mayor averring that the power system is “not up to the job” of dealing with events such as cyclones. Such is political life, one sighs.)

At the core of his presentation, Ferguson told the ESON forum that three key issues need to be tackled to deliver an effective energy policy.

First, Australia must have an integrated approach to climate change and energy policies to ensure efficient delivery of services as well as carbon abatement.

Second, federal and State governments need to continue to build consensus on energy market reform.

Third, federal and State governments, having “caved in to fear campaigns” on coal seam gas development, need to show political leadership to deliver sufficient gas at a competitive price on the east coast.

Ferguson spoke up for a climate change policy approach similar to what he said Kevin Rudd took to the September 2013 federal election: an internationally-linked emissions trading scheme with a floating price “working alongside the electricity market rather than against it.”

He told ESON: “If this policy had been introduced, and emissions were capped, there would be no room for people to pick winners in terms of their favorite energy technologies.

“Indeed,” he added, “we would be unlikely to see a short-term change to our energy mix (under the approach Rudd proposed) because any shift to cleaner energy technologies will occur according to proper price signals over a long period of time.”

With annual emissions capped, he said, this doesn’t matter because Australia can achieve least-cost abatement as the market determines.

(Of course, you will search media coverage of the past election in vain to find Rudd explaining his approach in these terms.)

Personally, Ferguson went on, he can’t see how the present government’s emissions reduction fund, budgetted to end in 2020, can provide a long-term investment signal, let alone least-cost abatement additional to business as usual.

He is not Robinson Crusoe in holding this opinion.

Ferguson, who provided his speech in advance to some media (a regular habit these days), got publicity on Friday (“Ferguson attacks distorting RET” was one headline) for his comments that a policy that is least cost, in line with international action and not undermining economic competitiveness shouldn’t include a renewable energy scheme that “simply imposes technological priorities directly on to energy markets.”

The RET, a policy introduced in its present form by the Rudd/Gillard governments when Ferguson was energy minister, “is undermining the resilience of the NEM by delivering new, subsidised capacity when demand is in decline and generation should be leaving the market,” he said.

Ferguson added that the RET is having a short-term effect of suppressing the wholesale price for energy, and making cost recovery for (conventional) generators more difficult, but this does not mean the scheme is costless.

“The RET,” he said, “is distorting the proper price signals that the NEM relies on to attractive efficient investment and to supply energy at lowest costs.”

His view is that the best outcome for consumers is for the Abbott government to wind the RET back to deliver a true 20 per cent of consumption in 2020 while grandfathering existing investments.

(There is also a view in some quarters that what the Abbott government is actually going to do, once it has received the report of the Warburton task force, is to freeze the scheme at its present level of roll-out, grandfathering investment, but the validity of this opinion is anyone’s guess. Developers who would like to spend $18.5 billion between now and 2020 to take advantage of the existing scheme out to 2030 will be bereft if this does happen and the green commentariat will levitate.It will also be seen as a breach of a pre-election promise in some quarters, but, as Abbott cannot put a foot right according to some, including most of the Fairfax media, he should worry.)

The other controversial area in to which Ferguson bought is power asset privatisation – and here he could hardly be more at odds with the views of the trade union movement, whose collective knees jerk and who deluge the public with tendentious claims about the impact on end-user prices whenever the topic is raised.

“I acknowledge that privatisation is politically unpopular,” Ferguson told ESON. “Yet, with so many benefits to the community, it should be possible to persuade voters that it is in their interests.”

Ferguson would like the revenue from privatisation – here he must be referring to selling networks, estimated to be worth more than $50 billion north of the Murray, and not generation – to be partly preserved through State sovereign wealth funds with the remainder spent on new infrastructure to lift State productivity.

“The benefit (of sales) should be more than a once-off windfall to State treasuries,” he added.

He called on New South Wales and Queensland (and Western Australia) to get on with the privatisation job.

It would be remiss not to include in a report of Ferguson’s comments his ongoing strong support for full retail contestability.

“We can’t predict how new technologies will change energy markets,” he said, “but deregulating prices will provide consumers with more information and more choices, as it has in the telecommunications industry.”

Ferguson, who is now an adviser to the Australian Petroleum Production & Exploration Association, ended his talk with a go at State governments, particularly New South Wales, for lack of leadership on the development of unconventional gas.

The start of the trio of Gladstone-based LNG projects is “fundamenbtally altering the dynamics of the domestic gas market,” he acknowledged.

“Domestic gas prices will spike around 2015-16 – and the key to resolving the problem is to ensure adequate supply reaches the market.”

Passage down this road, he said, is “being stymied by environmental campaigners” and overcoming their activities needs political leadership, especially in NSW.

“Governments,” he said, “need to carefully regulate these projects and to call out activists who oppose almost any form of wealth-creating development despite the science.”

Ferguson added: “(Governments) that fail to back the development of CSG will need to explain to an angry electorate why they haven’t taken action to allow additional supply that could have moderated the gas price.”

He wrapped up the talk, which was very well received, by conceding that both sides of politics at various times have lost sight of basic principles in designing energy policy.

“The best way,” he said, “of attracting capital and ensuring efficient investment in energy assets is through open and competitive markets where price signals from consumers underpin decisionmaking.”

Mission Impossible?

It’s not news that Australia’s east coast energy markets have meandered in to a cul de sac where every exit option raises someone’s ire and poses fresh political challenges for an increasingly gunshy set of politicians but where maintaining the status quo is not a viable option.

The messiness of the situation on the east coast – home to 9.26 million of 10.4 million national energy customers – is sketched out in all its ugliness in the submissions to the federal energy white paper mark 3 (the first was in 2004, the second in 2012 and we’re at it again) of the current era.

The muddle of the efforts to extricate us from the dead-end and back on the road where our enviable energy resources are a national advantage is highlighted by the fact that the Abbott government is undertaking both EWP3 and a separate, parallel inquiry in to the renewable energy subsidy scheme that is one of the root causes of the present palsied state of the electricity market.

This week, at a forum in Brisbane, I heard a federal public servant explain that EWP3 (being drafted by the Department of Industry) is scheduled to be delivered in September – but this is dependent on when the RET review is delivered by a handpicked task force working out of the Prime Minister’s office.

As well, of course, critical elements of EWP3 are dependent on whether the Abbott government can persuade the Senate to support its surgery on the Rudd/Gillard government carbon policies – and this is dependent on upper house numbers, which will be affected by a special election in Western Australian next month caused by the ineptitude of the Australian Electoral Commission.

Meanwhile, energy policy for the east coast is also dependent on the stances of State governments where Queensland is engaged in preparing its own 30-year electricity strategy, New South Wales is utterly at sea in trying to resolve its gas supply issues, Victoria is trudging uneasily towards an election and the one just completed in South Australia has left government balanced on a knife edge for the next several years.

Read this against the trenchant advice of the Energy Policy Institute of Australia, which is holding its annual “Energy State of the Nation” conference in Sydney on Friday, to the drafters of EWP3: “A nationally agreed energy vision is the central indispensable requirement for an integrated, coherent energy policy in order to reduce the excessive level of politicization of issues and to build community trust.”

Mission Impossible? We must hope not because to concede this is to condemn ourselves to milling around in the blind alley until something really bad happens.

Just take the electricity situation today in the so-called “NEM” – not a “national” electricity market, as it calls itself, because its excludes Western Australia and the Northern Territory, but one nonetheless servicing 89 per cent of Australian customers and 89 per cent of national power consumption.

The state of the “NEM” is characterized by a commentary currently featured on the Energy Supply Association website (see “Europe’s Electric Shock: Lessons for Australia”) as home to declining demand, impaired profitability of fossil-fuelled generators and investment uncertainty caused by politically-driven carbon policies.

The commentator, Mark Lewis, formerly of Deutsche Bank where he was global head of energy research and ranked number one in his field by “Energy Risk” magazine four years in a row up to 2011, observes that “squaring the circle of objectives on consumer affordability, energy security and decarbonization while affording investors acceptable returns is a complex task.”

No kidding!

Lewis’s remedy, and he is far from alone in making the point, is that “a bipartisan approach to the development of sustainable, long-term energy and carbon policy would appear to be a sensible and essential first step.”

Mission Impossible? In the present poisonous national political environment, it might appear so.

But the stark reason why this impediment must be overcome just in the case of electricity is also buried in Lewis’s commentary.

Given the present situation and the twin effects of banks being unwilling to finance new generation and existing plant owners struggling to find the means of sustaining maintenance, which, combined, serve to bar new gas-fired investment and to leave relatively old coal-fired power stations (now providing 75 per cent of supply) holding the ring, Lewis says, “it is not unreasonable to see scenarios in the near future where reliability at scale becomes an issue.”

This perspective is, in effect, endorsed by Fitch Ratings in a new report on Australian utilities in which it observes: “The timing and nature of new government policy governing future emissions and renewable generation is unclear, adding to the uncertainties in managing ongoing compliance relating to individual (business) emissions and future investment decisions. Higher domestic gas prices and lower emissions-related costs, expected under the new (Abbott) government policy, will enhance the sizeable cost advantage of coal-fired generation over competing gas-fired generation. As such, coal-fired generation plant utilization will be higher over the medium term.”

I recently saw an overseas (green) commentator excoriate the European Union policies as “weeny, weedy and weaky” – it’s a play on old J.Caesar’s hubristic report on a victory over a minor opponent in the Middle East – and the line works on today’s Australian stage too.

There is, however, nothing funny about this east coast electricity situation. Add the power supply issues to the domestic eastern Australian gas supply/price issues and the energy problem, as the economists say, is non-trivial.

If resolving this problem is not to be Mission Impossible, then the essential first step is far-sighted, incisive, timely leadership by federal and State governments engendering community trust and investor confidence.

Merely to say this is to highlight that the cul de sac we are in is at the bottom of a steep hill and that the path back out is a long,hard climb — one that cannot wait for another day.

Are we now at the stage of preparing to take the first firm steps towards the way out?

Or are we still engaged in milling around in a confused and confusing melee?

New energy in Tasmania

Watching the Liberals crush Labor and the Greens in Tasmania overnight brought back memories.

I was CEO of what is now the Australian Petroleum Production & Exploration Association back in 1982 the last time Tasmanians decided they had had quite enough of a red/green alliance and put the Liberals and Robin Gray in office for the next seven years.

My association with the island State actually goes back longer than that — to the mid-1970s. I was then issues manager for Associated Pulp & Paper Mills and dealing with “Electric Eric” Reece when  Tasmanian Labor was still a workers’ party.

(It’s notable that Labor took another thumping in the State’s industrialised north this weekend, just as it did in the federal election last September. Whatever Labor is in Tasmania today, it is not the workers’ party — a point the chatterers in the Fairfax media can’t bring themselves to acknowledge today as they offer all sorts of gloss on a trouncing for both Labor and the Greens.)

In my view, the only other Tasmanian premier (apart from Reece and Gray) worth a cracker over the decades was Labor’s Jim Bacon, whose career and life were cut short by bad health.

The State energy scene has changed mightily since the days of “Electric Eric.”

It’s hard for younger people engaged in the sector today to appreciate just how dominant and how arrogant “the Hydro” was over the decades until the 1990s.

It took the major national power reforms, introduction of an enlightened local management and another spell of Liberal government to create the basis of the current Tasmanian energy set-up.

The new Hodgman government comes to office with a plan to once again make energy an economic driver for the State, something easier to say than to accomplish in the present environment.

One of Hodgman’s first steps will be to establish a taskforce to work on a State energy strategy.

There’s no question, however, of the Liberals privatising “the Hydro.”

Hodgman is clear that the generator will stay in government hands and he also wants to increase its output by 10 per cent.

Properly maintained and enhanced power assets, the Liberals say, will help attract investment, help boost renewables in the east coast generation mix and make a further contribution to “NEM” peak load management.

The most eye-catching item (from a federal perspective) on the Liberal agenda is consideration of building a second Bass Strait interconnector.

The new government will shell out $2.5 million to fund a case for Basslink 2 in search of Canberra support for the concept.

(Labor went to the election also supporting Basslink 2 but this was a backflip — when the Liberals first raised the idea several years ago, the Giddings government derided it.)

Another area of policy that is sure to get some national focus is the Liberals’ desire to see the residues of the State’s timber industry burned to produce electricity, something the Greens persuaded the Rudd/Gillard governments to ban from the revised renewable energy target scheme.

The Abbott government is committed to reversing this policy and will now have strong support from Hodgman while you can guarantee Christine Milne & Co will go nuts at the prospect.

An interesting question is which way “Electricity Bill” Shorten will jump on this issue?

On the State domestic front, the Liberals are pledged to introduce full contestability for household and small business electricity customers, something the mainland retailers will welcome even though this is a tiny market (roughly a tenth the size of Victoria’s).

The big ticket national interest item, already picked up in the media in the last days of the election, is that a Hodgman government is all for retaining the RET — but this needs interpretation.

Hodgman in the run-up to his poll victory said he would “push strongly” to ensure that any RET changes did not adversely affect the Tasmanian wind and hydro opportunities — which is not the same as saying the scheme should not be altered.

Already the green lobby is interpreting his comments as a commitment to lobby for “retaining the RET in its current form.”

What needs to be remembered is that Tasmania does indeed get 90 per cent of its electricity from renewables (mainly hydro) but it is ever-so-reliant on Basslink to ensure that the brown coal plants in Victoria provide an economic lifeline when there is a major drought.

The greater the State’s reliance on wind power, the more it will need back-up from hydro and fossil fuels and from a reliable “NEM.” 

The size and shape of the RET is far more important in the context of an efficient eastern market than it is with respect to household power bills. (It’s impact on energy-intensive input costs is a different matter.)

Meanwhile, how a Hodgman government will jump on the $2 billion King Island wind farm development proposed by Hydro Tasmania and the Giddings regime — and opposed by some King islanders even to the extent of a court challenge — is one of the issues that will need to resolved in the months ahead.

A changed RET will pretty well kibosh the present big idea.

On the wider front, Hodgman comes to office with a clear statement about energy.

The Liberals’ platform says: “The key objective will be to identify ways in which energy can once again be utilised as an economic driver by securing a stable and sustainable price path that can provide relief to consumers and help grow the economy.”

The new government promises to deliver a strategy by the year’s end.

Not just a theory

The economic working papers produced by the AGL Energy economics team of Paul Simshauser and Tim Nelson (and various colleagues) are not for the fainthearted reader.

Simshauser is not just the company’s chief economist, he is also professor of economics at Griffith University. Nelson, who is head of the company’s economics and sustain ability unit, has had a long involvement with the University of New England.

The title alone for their new paper — “Solving for ‘x’ — the New South Wales Supply Cliff” (available now on the company website) — is enough to put the fear of a deity in to those of us who struggled with maths at school, but the gist of what they are saying is a must-read for the State’s policymakers and a raft of others.

Being economists, they just love expressions like “non-trivial” — as in “A non-trivial quantity of existing gas contracts currently supplying NSW will mature by 2016. Much of that gas has been (now) recontracted to LNG producers in Queensland, thus creating a gas supply cliff in NSW.”

The pair’s point, enmeshed in analysis from their dynamic partial equilibrium model over which your’s truly skips at speed, is that, absent new supply-side development, unserved load events in the State “remain more than a theoretical possibility.”

This is the bit that needs to be communicated to the State community, factory owners and the politicians in the direct firing line (including a number in Canberra when the issue spirals in to a national economic problem) as some in the media and on the sidelines continue to assert rather loudly that the whole supply threat issue is confected for the benefit of big, bad producers and retailers.

With footnotes and references, the Simshauser and Nelson paper runs to 36 pages, so all you get here is a paraphrase but it’s the shorthand, I think, that needs to be seriously appreciated by the consumer and policy players.

In passing, the pair answer the squawkers about how there wouldn’t be a domestic gas supply problem if we didn’t have all that dreadful LNG development. “It was clear to (coal seam gas) resource owners (they say) that the east coast market was not large enough to enable the monetisation of reserves in suitable timeframes and at the scale necessary to maximise profit, so developing an export market was a logical strategic solution.”

Of course, for those who faint at the mention of profits (or pretend to do so while, in more than a few cases, watching their investment returns, including super, through slitty eyes), this is the root cause of the whole problem.

To them, one merely says that the alternative was a pipeline from Papua New Guinea and would they care to guess at its delivered price to Sydney in 2016?

Coming back to Simshauser and Nelson, the pair point to the “irony” of the present restrictive NSW policies on CSG development compared with the accommodating approach in Queensland — the former is the region almost totally vulnerable to a large demand shock — and they say the firmly expressed South Australian view (no commercial arrangements to be broken to help out NSW) is also going to be held north of north of the Tweed and in Victoria.

One of the issues management problems with situations like this is what I like to call “MEGO” — an acronym for “my eyes glaze over,” a frequent difficulty in translating for politicians stuff like “an inter-temporal mismatch between supply and demand is predictable because gas consumption patterns display diurnal cycles with marked seasonal variation.”

Huh?

Translation: there are going to be days in winter in the relatively near future when there’s not going to be enough gas to meet all NSW needs.

This is something about which the deniers (of the looming State crisis) get very worked up because (they say) it is a hollow threat. Simshauser and Nelson deal in some detail with those in the denial camp who believe the NSW supply cliff can be avoided by rapidly expanding gas pipeline capacity and storage infrastructure from Victoria.

Orchison’s shorthand is that big-time augmentation of this capacity doesn’t stack up with the moneylenders: the long-run outlook is financially dodgy because of demand uncertainty over the life of such projects.

In the real world, sadly (if you are a bottom-of-the-garden fairy), people want a rather large degree of certainty that they are going to get their money back plus the best possible return on putting it to work. This, too, is not just a theory — it’s how the world works

And, the AGL pair point out, when one finally gets to the point in NSW in the depths of winter where gas supply is inadequate, the State minister for energy is required by law to step in and direct progressive shedding of large industrial users from the supply chain until available volumes meets demand. That’s also not just a theory.

Simshauser and Nelson point out that, in this situation, gas-intensive industrial users in NSW who have contracts maturing in 2016-17 have, in essence, three choices: pay substantially higher prices to get supply, cease trading or reduce production.

“Under these circumstances,” say our pair of economists, “it is difficult to imagine employment levels associated with NSW manufacturers being completely unaffected in the short run.”

No prizes for how the “Daily Telegraph” would translate that in to a big, black headline.

Now don’t draw alarmist conclusions, say Simshauser and Nelson. Not all manufacturers in the State are gas-intensive and those that are represent a small share of national employment. But there will be locations where the impact really hurts — they point out that the Sydney suburb of Smithfield, for example, has at least 12 large gas-consuming sites employing 17.3 per cent of its local workforce.

(Of course, the demand story is complicated. In another example, a big chunk of NSW gas demand in recent years has gone to power production, but, for a range of reasons, east coast generators’ needs are falling away — possibly, the pair, say from 30 per cent of total weak peak gas demand in 2012 to less than 10 per cent in 2018.)

Buried in the paper’s middle is a piece of modelling that postulates what might happen in winter 2016 is that as many as 48 large industrial customers could need to be shed from the supply system over 56 days. It’s not a prediction — it’s a scenario, but it is also not just a theory. It involves real company needs for gas and a real issue with adequate supply.

There’s a whole chunk of the Simhauser/Nelson paper dealing with gas reservation proposals and why they are undesirable, including this sentence: “(Such a) policy in Queensland seems an unlikely outcome and almost impossible (without constitutional amendments) as a resolution to transient unserved load events in NSW in 2016.”  Quite.

The long and short of the AGL paper comes in this observation: “The most obvious policy response is to remove non-scientific, and therefore unnecessary, regulatory and policy barriers to gas exploration and field developments.”

That,too, is not just a theory.

From where I sit, it’s just common sense — which, in this respect, seems to be in very short supply where it matters in NSW policymaking.

The AGL paper demonstrates why this is a bad thing.

Catnip for campaigners

The reaction was entirely predictable, but that doesn’t mean that the incident shouldn’t be outed for yet another example of the way the opponents of coal seam gas developments, especially in New South Wales, will seize every opportunity and massage information to denigrate the proposed activity.

The bald news is that the NSW Environmental Protection Agency has fined Santos $1,500 for a pollution incident at its Narrabri gas field operations in and around the State’s Pilliga woodlands resulting from the activities of the company from which it acquired the project. The pond had not been properly lined and it leaked.

This was announced by the EPA in a media statement on 18 February but “revealed exclusively” by the “Sydney Morning Herald” on 8 March and immediately leapt upon by the green movement for whom any such event is pure catnip and who clearly were well-prepared to pounce on this occasion.

The water treatment pond at the centre of the issue was decommissioned in December 2011 and will eventually be emptied when a new facility is built. The contamination was actually discovered by Santos on acquiring the operations and notified to the EPA in March a year ago.

As far as some media and the green radicals are concerned, this is “the first confirmation of aquifer contamination associated with CSG” and, to quote one commentator, is “a U-bomb that shatters the gas game,” an allusion to uranium found in the water samples.

All the usual suspects have jumped in to denounce the company and CSG activities anywhere and everywhere.

Three sentences from the Santos media statement on the issue provide some context: “It is important to note the localised groundwater where these elevated concentrations (of minerals including arsenic, barium, nickel, strontium and uranium) were found is very limited in area and water volume and (it) is not used for agriculture, stock irrigation, human consumption or domestic purposes. The localised water sampled is not connected with regional aquifers. The detected concentration levels are below those found in surrounding soils.”

I remember a competition years ago for the most boring news story that was won by “Small earthquake in Peru. No-one hurt.”

This Pilliga story perhaps belongs in that genre but it has been parlayed in to an alleged major incident by the campaigners and certain journalists.

The industry’s lobbyists, the Australian Petroleum Production & Exploration Association, needless to say, are incensed by what has been going on.

“Hysteria” and “a gross misrepresentation of facts” are the labels APPEA applies to the anti-CSG campaigners’ game.

APPEA’s Rick Wilkinson, in addition to highlighting the comments from Santos, emphasises that the levels of uranium and other elements reported are well below the Australia/New Zealand guidelines for freshwater ecosystems — and that the State EPA has told the media the reported metals are not additives and occur naturally in the surrounding soil and water.

The EPA says the level of environmental impact is “small” but that’s big enough for the radical campaigners.

“Using exaggerations and untruths to progress political agendas,” says a pained Wilkinson, “does little to enhance public understanding of development of the State’s natural gas resources”

Well, I doubt that was what the radicals had in mind.

Inculcating false perceptions, yes, fear too if that can be managed, but genuine understanding — that’s not their game.

And NSW Labor, which is just as shameless as any green campaigners in this debate, demonstrated its commitment to the community’s long-term interests by shoving out a media statement calling on the O’Farrell government to “tear up” the recently-signed memorandum of understanding with Santos to fast-track the approval process for “coal seam gas mining” (that’s a favourite with the smearmongers) in the Pilliga.

“This contamination of the water aquifer is highly alarming,” says the party that was in government when the previous operators were pursuing their activities, a point that Deputy Premier Andrew Stoner was not slow to make in response.

The Greens, of course, say that this event “means that it is game over for coal seam gas.”

What will happen in NSW remains to be seen, but it is hardly game over for CSG in Queensland, a major global resource province which, via the domestic and LNG gas industry, will see something like 39,000 wells drilled by 2030 to the benefit of participating farmers, local communities, State employment and the community at large (through many billions of dollars of taxation and royalty payments) — and of course investors in the exploration and production companies, not are few of whom are Australians directly and via their super funds.

There’s an interesting paper from KPMG coming up at the 2014 APPEA conference in Perth next month in which it will be argued that there is a need for “a disciplined, stakeholder-centric approach for measuring shared value” in gas developments. More on that in due course but the need for the industry to work still harder on selling the values messages would be self-evident even without this latest incident.

Meanwhile, you can expect the green cat to continue to play with its new self-designed mouse.

Plus, there’s the not unimportant point that the previous company involved with this area reportedly constructed the pond to less than best standards — a reminder that the upstream petroleum industry’s reputation will be judged by its weakest links, however little they represent the practices pursued by the leading businesses.

Coal and context

As I have written here and elsewhere on more than a few occasions, the big missing link in so much of our public debate on energy is context.

Take coal.

The anti-coal propaganda is so prevalent that most of us could recite it in our sleep – but how often does the obverse of this coin get much exposure?

In the past few days there have been two occasions were this side has been put forward in a way that is not often highlighted.

Launching a new public relations initiative for the company he leads, Gregory Boyce, chairman and CEO of Peabody Coal, has pointed out that a half century ago US President Johnson declared war on global poverty and a decade ago the UN set up its “millenium goals,” calling for halving of poverty by next year – yet today 3.5 billion people lack adequate access to electricity and four million a year die from the effects of energy poverty (that’s the population of Melbourne).

In a statement introducing Peabody’s “Advanced Energy for Life” campaign, Boyce argues that, when turned in to electricity and synthetic gas, coal can eliminate global deforestation from gathering biomass as well as alleviate poverty.

Coal, he asserts, is uniquely valuable because of its density, availability and cost benefits.

Of course the gas, hydro power and nuclear industries might like to get in a word (or a few million words) here, and there is much to be said for their contributions internationally present and future, but let’s just focus on coal for this commentary.

Boyce has included reference to Australia in his statement, pointing to a $43 billion a year contribution to the national economy (RMIT research) from exports and domestic use of the fuel.

(This can be expanded, by the way, to embrace a fossil fuel contribution to the economy of some $100 billion when gas and condensate is also taken in to account, not a number that gets any airplay in our media, who have emoted rather a lot about some manufacturing sectors and their woes in recent weeks.)

Boyce calls on the Abbott government to end the “failed” carbon tax scheme, scale back renewable energy targets, push down electricity costs and restore Australia’s competitive advantage in the Asia Pacific.

Rational environmental policy, the Peabody leader asserts, lies, among other things, in advancing next-generation coal technologies that can lead to an ultimate achievement of near-zero emissions from using the fuel.

This sort of stuff, needless to say, sends the greenies and their fellow travellers in to paroxysms.

How dare “Big Coal” turn its sights on the emerging world to secure its own future?

Unlike Big Green?

Meanwhile some of the radicals have been also making unhappy noises about comments by BHP Billiton CEO Andrew Mackenzie, who spoke at the CERA Week 2014 conference in Houston last week.

More than a century after Edison built the first power station, Mackenzie told the CERA audience, more than 700 million people in sub-Saharan Africa still rely on burning wood or charcoal to cook and to heat their homes.

(And on costly — for them — kerosene lamps or candles for lighting, I’d add.)

Part of Mackenzie’s point is that some 1.7 billion people in South Asia, India and Africa are expected to gain access to electricity in the next 20 years, alleviating energy proverty while influencing commodity demand around the world as well as the health and stability of the international economy.

(Context: 1.7 billion people represents 243 Sydneys, a city that has a residential power load of 2,000 to 3,000 megawatts depending on where you set its boundaries. The developments in India, Asia and Africa will come with very large commercial and industrial loads, too. Think hospitals, schools, supermarkets as well as factories.)

In that world, Mackenzie says, 70 per cent of global energy will still come from oil, gas and coal (feeding a much larger market).

Gas, he notes, can be expected to show the strongest growth, “but the shale gas revolutiion is unlikely to go global quickly” and we shouldn’t expect gas to replace coal internationally at the scale and pace now being seen in America.

And here’s what he says about renewables: “(They) are likely to be a rapidly-growing source of energy as we strive to reduce carbon emissions, but we will only be able to rely on them after large-scale and cost-effective energy storage becomes available.”

One should pause to note at this point how the ever-so-green Gillard/Brown/Milne government, and its Rudd bookends, put a major effort in to boosting electricity storage along with carbon capture and storage. Not.

We wait at present to see how far an Abbott government will go on both fronts.

Mackenzie, by the way, came up in Houston with a most quotable quote.

“Energy security,” he told the CERA audience, “is a matter of governance not geology. What is above ground matters more than what is below.”

There, may I suggest, is an opening statement for our next energy white paper in due course.

Meanwhile, those who so enjoy preaching about the green-ness of western European energy governance may care to note a recent report that the third-largest coal-using region in the world, after China and North America, is still the European Union.

After 20 years of expensive collective “energiewende” and of lecturing all the rest of us about how to curb carbon emissions, the EU’s annual coal imports have gone up seven per cent.

The union now mines 130 million tonnes of hard coal and imports another 210 million tonnes annually.

Only China imports more.

Plus western Europe mines another 430 million tonnes of brown coal – we burn 70 Mt of lignite in Australia, so they have the equivalent of six Latrobe Valleys.

And then there is the point that a substantial part of the EU’s black coal imports come from Africa south of the Sahara (cf Mackenzie above).

Africans by the tens of millions trudge their plains and woods collecting twigs and cattle dung for cooking and heating needs while their European counterparts are the cosy beneficiaries of comfort from coal out of Africa.

It all goes to context, you see, not something we get served nearly often enough.

The way of the West

The West is a far country (for us who live on the east coast). They tend to do things differently there (well, up to a point).

Late in February I was reminded that I should be paying more attention to WA energy affairs per medium of an address by Energy Minister Mike Nahan to the domestic gas outlook conference I co-chaired in Sydney followed by dinner in his company.

This was reinforced late this week by Nahan’s announcement of an electricity market review focussing on rising power bills, as sore a point with voters over West as it is on the east coast.

(In passing, “our” ABC, looking at its website for WA, has chosen to ignore Nahan’s announcement of the review. It has a story on a hand-reared penguin chick being released in to the wild and a lot on the re-running of the WA Senate election, as one would expect, but not a syllable about a new study of the the south-west system that impacts on 1,051,000 State homes and businesses.)

Energy and politics are synonymous, of course, so Nahan’s statement opens with a swipe at Labor for the flawed disaggregation of the government-owned power utility in 2006.

The Barnett government has recently disappeared Verve Energy, the generator created in that move, merging it with Synergy, the retailer, and retaining the latter’s name for the new business, effective New Year’s Day.

Nahan says the market review will be run by a steering committee of three: energy policy and management veteran Paul Breslin (who has served in the federal government, the Queensland government and more recently as a leading consultant) and two serving deputy directors-general from the WA government.

Its role, Nahan adds, will include suggesting how to reduce the power supply cost burden on consumers and taxpayers – the former having grown irritable with several years of price rises under the Barnett government as it pursues a cost-reflective service and the latter now subsidising said service to the tune of half a billion dollars a year.

At the present rate of give-aways, mostly to people who can afford to pay their bill, the State will accumulate an extra debt of $2.2 billion in four years. As Nahan points out, you could build a substantial new hospital for this money.

(Perth household tariffs lie about three cents below the national average for a “typical homes,” which in the SWIS means one using some 5,800 kilowatt hours a year. Not surprisingly the penetration of air-conditioning in the south-west system is among the highest in the country, so peak demands remain high even as average consumption declines.)

The cross the Barnett government wears, constructed by the populist approach of previous Labor governments, is that it has pushed up power bills 86 per cent since coming to office in 2008 and has still not caught up with supply costs, including financing the high outlays on networks.

In its latest annual report, Western Power, the transmission and distribution business the government owns, says its spent $1.05 billion in capital improvements in financial year 2012-13, mostly to replace ageing kit, and this represented more than five times its net profit.

Given that the hooting about “gold-plating” is still alive and well from coast to coast, it is interesting to break this outlay down: $370 million went on reducing safety (ie fire) risk through replacement of wood poles, replacing aged overhead conductors and installing new line separators.

Another $281 million went on new connections and $75 million was spent on improving existing infrastructure in areas where demand had risen while a further $87 million was spent on a new Mid-West supply project.

The balance was outlayed on metering services, regulatory compliance obligations and the State’s undergrounding networks project.

Western Power also spent $108 million on its heavy fleet needs, information systems and acquiring land to build new substations.

Lots of “gold-plating” there, don’t you think?

Which bits would the customers like them to have not spent in a State where the weather makes a secure electricity supply a very essential service?

Interest paid on the jumbo-sized debt, meanwhile, was $280 million.

I‘ve gone a bit in to the detail because even relatively good media coverage – eg the “Australian Financial Review” – cannot wean itself off the “gold-plating” slur while for some (eg the News Limited tabloids) it is apparently a standard epithet if they are writing about networks.

By the way, on the opex side, in 2012-13 the WA business had to spend $256 million on network maintenance and fault repairs, such as rectifying storm damage, even as it cut its outlays by 4.3 per cent from 2011-12.

As a result of the capex program, Western Power’s debt shot up $713 million to $6.19 billion and is expected to continue to grow until 2017 under present arrangements.

Western Power, like its opposite numbers in the east, is grappling with the issue of trying to make ends meet in an environment of a declining mass market demand.

The business reports that its 1.048 million household and small business customers required delivery of 8,693 gigawatt hours of electricity in 2012-13, a small fall on 2011-12 even though customer numbers went up 16,800.

(Its 2,300 large-use commercial and industrial customers increased their requirements 3.5 per cent to almost 8,400 GWh – this is the West where they talk more quietly about a boom today but economic growth is still real.)

Western Power attributes the household demand decline to reaction to higher prices, use of more efficient appliances and the impact of rooftop solar PV systems, just as in the east.

The network get-out-of-jail card, there as here, is a restructured tariff system, but it is no more politically attractive in the West than it is in the east – even though all concerned in legislating know that, just as in the boxing ring, they may run, but they can’t hide.

On both coasts, and especially in New South Wales and Queensland, where the State governments also cling to ownership of power delivery assets, policymakers have dug themselves an enormous hole (to change metaphors) – and the only way out is via steps that are politically horrendous so long as one or other side of the mainstream parties persist in playing games.

This is another area where the national energy white paper should tell it like it is.

Meanwhile, the Breslin committee is required to report back to Nahan in October.