Archive for January, 2015
Taking advantage of the Australia Day long weekend to read the (voluminous) responses of the New South Wales and ACT power distributors to the Australian Energy Regulator determinations, which have riled them a great deal, one thing seems clear to me: the chances of this imbroglio ending up in the Federal Court are not small.
There are numerous threads running through the networks’ comments that signal they are planning to take legal action if their concerns are not recognized to a significant extent.
The most vigorous response – there are four, including the NSW trio of Ausgrid, Endeavour Energy and Essential Energy – comes from ActewAGL and its chief executive, Michael Costello, who, in other lives, has been chief of staff to Kim Beazley and Bill Hayden, head of two major federal government departments and our ambassador to the United Nations.
There is nothing diplomatic about Costello’s foreword to ActewAGL’s second stab at a regulatory determination for the five years to mid-2019.
He kicks off by telling the AER that it’s departed “significantly” from what the regulator foreshadowed in its “Better regulation” statement following the Australian Energy Market Commission’s rule changes.
ActewAGL, he says, accepts that more discretion for the regulator may be lead to better network outcomes provided that the decisions are well-principled, transparent, accord with international best practice and are consistent with the national electricity law – but they aren’t (he claims).
By law, Costello argues, the AER can’t just pursue network charge reductions; it must also consider reliability, quality and safety issues.
The regulator, he says, has “relied exclusively on unreliable techniques” to set expenditure allowances that are “alarming.” It has “relied on flawed models and incorrect data” to estimate replacement capital expenditure – and it has imposed operating expenditures last allowed 15 years ago, since when the network has grown to serve 40 per cent more customers and to manage an asset base 40 per cent larger, too.
Central to the networks’ argument – the NSW trio are just as exercised if their language is a bit less robust – is the claim that the AER, in pursuing short-term electricity price reductions for consumers, is laying the ground for higher costs in the longer term.
You are going to repeat the boom-bust cycle of the past, Costello tells the regulator.
Set out in the hundreds of pages of submissions from the DBs is a litany of criticism of the AER approach and warnings of the potential impacts of the proposed capex and opex cuts on network reliability and safety (including maintaining safe conditions for the firms’ workers) and on levels of employment (possibly a weak link in the government-owned distributors’ argument because of accusations that they are over-staffed and their budgets are littered with unnecessary perks for union members).
The greatest level of attack is reserved for the benchmarking the regulator has pursued, both because of claimed lack of appropriate consultation with the networks before it was applied and because of perceived major flaws in the approach.
Ausgrid, for example, declares that the benchmarking model is “immature, unreliable and flawed,” saying its efficiency calculations are “wrong.”
At the heart of what may end up in a suit or suits in the Federal Court is the argument that the national electricity law contains elements that bind the AER to provide networks with a return commensurate with the regulatory and commercial risks of the services they must provide.
The key part of the national electricity objective, as set out in the NEL, requires steps to “promote efficient investment in, and efficient operation and use of, electricity services for the long-term interests of consumers with respect to price, quality, safety, reliability and security of supply” as well as the “reliability, safety and security” of the system.
ActewAGL argues that “the NEO is concerned with the interests of consumers in sustainably low prices rather than the pursuit of short-term reductions at the expense of their interests in the quality, safety, reliability and security of supply and the reliability, safety and security of the distribution systems in the longer-term.”
The court of public opinion is one thing – and the AER decision has been welcomed by the media, echoing feedback from large industrial power users and consumer advocacy groups – but the measured decision of a judge, dealing with “black letter” law, on the AER approach is potentially very different.
And you don’t have to be learned in law to detect the advice of corporate lawyers in the responses the four distributors have sent to the AER.
Court action against the regulator could result in substantial delays in network investment programs, considerable uncertainty for consumers and for distributors’ employees, an impact on the Coalition’s privatization plans in NSW and Queensland, with flow-on effects for wider infrastructure programs, and, should the DBs succeed in the case, a major blow for the standing of the watchdog.
Whatever else can be said for or against the regulator’s current crop of decisions, and there are more draft determinations to come for other distributors, the AER itself is also obviously under the microscope as a result of its process and its axe-swinging in this bout of oversight.
The implications of all this should not be under-estimated.
There are a number of notable things about the “Future of Electricity” report released by the World Economic Forum at Davos, Switzerland, in the past week.
From a local perspective, for me, one of the most notable is the determination of our usual suspects in the green-tinged media – the ABC, the Fairfax daily papers and the renewables-boosting electronic media – to just ignore the report despite being spoonfed the main story by news agency Reuters.
So far as I can tell from scanning Google News, not one of the local media has picked up the Reuters’ report that the European Union could have “saved $US100 billion” by better managing its much ballyhooed, decade-long rush at solar and wind power.
Actually, the cost, eventually borne by consumers, is even more because the WEF study also calculates that co-ordinating the EU’s power network development with the dash for renewables could have saved another $US40 billion.
Translated, in generation alone, the politicians have overseen far too much solar PV installed in Germany and far too much wind power on the Iberian peninsula where conditions actually encourage the exact reverse for renewables development.
Even Reuters, however, fails to pick up the most significant point of the study.
“This scale of investment has a cost for society,” say the authors, senior WEF staff and partners from Bain & Co.
Consumers in Germany and Spain, the international poster children for the renewables boosters (nowhere more so than in Australia), the report says, have seen an inflation-adjusted rise in power bills between 2006 and 2013 of more than eight per cent annually.
Between now and 2040, they add, wholesale electricity prices for households and industry are expected to rise by 57 per cent in the EU.
Subsidies for renewables, they say, have risen by 20 per cent annually for the past six years in the EU and are expected to increase by another 20 per cent over the rest of the decade.
As has been reported often before, but never too loudly by the boosters, industrial power prices in Europe are now about twice what they are in the United States.
As a result, the EU’s share of global production of energy-intensive goods is expected to drop 10 per cent by 2035 versus a one per cent rise in America, three per cent in China and two per cent in India, this study says.
Also buried in the WEF report is this thought: we can expect to see $180 billion a year being splashed out on new power generation between now and 2040 in the OECD – and by the end of this period non-hydro green power will be generating just 24 per cent of electricity needs in the 30 member nations.
What a major power system is most about – something the ideologues just don’t understand – is balance and the EU, says the study, will need to build 138,000 megawatts of new thermal capacity over the next 11 years to maintain supply system adequacy; that’s roughly three times the existing thermal capacity on Australia’s east coast.
Of course, we are not Robinson Crusoe here in having an east coast generation system choked by the policymakers’ inability to do an efficient job of the transition to lower-emitting supply.
The EU, according to the WEF study, has added 130,000 MW of renewable plant and 78,000 MW of conventional generation to its system in just five years while retiring only 44,000 MW of thermal and nuclear capacity – and this at a time of flattening demand.
Renewables incentives and the lack of an integrated plan, the report authors say, have “resulted in capacity overbuild,” which is EU-speak for “we have stuffed up mightily.”
Wade through the report – it runs to 32 pages – and you will find some pointers on policy that apply here as well as in Europe although it is critical to appreciate that locations, circumstances and needs all differ and a single green suit does not fit all.
The study highlights the importance of policy stability – but the policies have to be correctly delineated before they are stable. (Here, we have a RET that’s not fit for purpose and a riot of vested interest opposing changes while Labor plays games for its own perceived electoral benefit.)
One of my friends, on reading the WEF report, comments that it highlights misconceived political interventions on a grand scale.
Policymakers, the study says, must aim to decarbonize at the lowest cost and pursue diversity of electricity supply – whereas our local green gang want us to close down all thermal generation, continue to eschew nuclear and hang our hats on wind and solar in the main, grudgingly allowing that large-scale hydro has a role.
And, the WEF report adds, don’t just focus on electricity supply for abatement opportunities.
The study being Euro-centric, it also speaks up for “robust carbon pricing,” not something the mainstream parties here will embrace after recent experience but without which pursuit of significant decarbonization everywhere is just so much talk.
The monkey on political backs in democracies, however, remains the impact of all this on consumers.
The WEF study observes, perhaps rather sententiously, “the lower the costs of the transition, the less likely policies will be to shift when economies dip and political winds change.”
There is rising public resistance in Europe to environmental taxes, the report notes in passing. Funny that.
Perhaps its closing sentence should have been upfront: “Only by securing the viability of investment can policymakers successfully (create) a more sustainable and efficient energy future.”
This report offers no panacea for a massive international issue – my aforesaid friend thinks it “suffers from too much abstraction and generality” – but it does serve to highlight the rather chaotic energy environment in Europe that so many of our local ideologues have no stomach to address and that, it seems, judging by the media coverage (ie none), they would prefer not be brought to local community attention despite having spent years telling us how wonderful the EU dash to renewables has been and why it is a lesson for us.
There is a point in a new submission to the New South Wales Legislative Council inquiry in to the supply of gas and liquids fuels in the State that really sums up how out of kilter the east coast situation has become.
Upstream petroleum exploration regulatory approvals that cost $10,000 in South Australia and Queensland and can be finalised in weeks cost “upwards of $500,000″ and take nearly a year to complete in NSW.
This is the resource management theatre of the absurd.
Ideologues may snarl at Queensland and accuse its Coalition government of all sorts of things, but South Australia has been governed by a centre left Labor regime for years and is lauded for its advanced views by renewables boosters.
The difference between SA and NSW in this context is the chasm between competence and incompetence — and it is the gas customers in the “premier State” who are going to pay for it.
The submission citing this extra-ordinary state of affairs is from Santos, which is struggling to to pursue its Narrabri project — a coal seam gas development that can create more than a 1,200 construction jobs and 200 ongoing positions, inject $160 million in to a local community benefit fund and deliver $1.6 billion in royalties to the NSW government. Whether, when and how it can get to completion is the lap of the red tape gods (and a ducking and weaving Coalition government).
As Santos also points out, the long-running contracts that have delivered gas from interstate to NSW for many years run out in 2015-16 after which the State’s customers will “pay unnecessarily high prices” for the fuel in an east coast market increasingly dominated by the demands of the Gladstone LNG facilities.
The other major supplier pursuing development in NSW, AGL Energy, continues to warn that, without access to new resources, the State “could face unmet gas demand from 2016″ — perhaps 21 days of shortfalls in winter next year — while its Gloucester Valley project and the Narribri development could “make up the shortfall from 2017, albeit with little margin for error.”
If the shortfalls do happen, AGL adds, there will be “dire social and economic consequences.”
It’s a perspective supported by a submission to the parliamentary committee from CSR, which has 12 sites in NSW, employing 750 people, a quarter of its national workforce.
The company says that it expects east coast gas prices to double and there could be outages of “10 or more days” in NSW despite the 2014 outlook from the Australian Energy Market Commission seeking to argue down this prospect
The hope of accessing Northern Territory gas resources through a long (and yet to be declared commercially viable, let alone built) pipeline may mitigate shortfall fears but this development cannot be a near-time solution and it is not going to deliver lowest-cost supplies to the Greater Sydney market and the rest of the State, which means to 1.2 million customers and 45 per cent of the NSW manufacturing base. (This includes, by the way, the electoral constituency of Auburn, the chosen seat for new Labor leader Luke Foley, who has declared his support for the Greens’ call for a moratorium on CSG activities despite 20 per cent of Auburn voters being employed in factories.)
The importance of manufacturing to the State is set out in a submission to the Legislative Council committee by the NSW Business Chamber: factories contribute $34 billion to gross State product and directly employ 8.8 per cent of its workforce, it reports.
To all this, the Energy Supply Association adds that continuing to frustrate the NSW coal seam gas projects threatens long-term costs for all four south-eastern States between now and 2030, claiming that by the end of the next decade wholesale prices for gas sold to SA, Victoria, Tasmania and NSW could be 25 to 32 per cent higher than if the dithering State got its act together.
Broad brush statistics like this go over the heads of the “sensible middle” of the community — while any argument for gas development in any form is lost on the green-supporting minority — so it is useful to toss in a digestible example of what the wholesale price spikes will deliver. The Grattan Institute has estimated that a $5 per GJ wholesale price rise will add $2,500 to the annual bill of a dry-cleaning business using 500 GJ a year. Scale that up to a large factory and it is not hard to see why trade-exposed manufacturers do not fancy this prospect at all.
We hear a lot of talk about the burden imposed on local gas customers by suppliers pursuing exports, so it is also interesting to see Santos point out that, even at the domestic wholesale price range of $6 to $9 per gigajoule now being projected for the east coast, local manufacturers will be paying two to three less than the bills facing their Japanese and South Korean counterparts.
Santos says that NSW can be self-sufficient in gas supplies “for decades” by developing the resources within its borders, thereby suppressing price volatility for the fuel’s customers, but the political will to deliver this security is clearly lacking.
There are a raft of other supply issues being kicked around in the submissions to the Legislative Council committee, including the contentious topic of improving the way the market operates, but the big over-riding matter for resolution by the NSW government is the looming physical lack of supply. The government’s own submission to the committee doesn’t leave me with the impression that it is about to achieve this quickly — perhaps the simple truth is that it is waiting for the State election (28 March) to be out of the way. If so, it and some important parts of the economy could be in for a bumpy ride in 2016.
Making up policy as they go along seems to be a trait of far too many politicians in dealing with the energy game.
Fitting their ideas in to the bigger picture in pursuit of the long-term interest of consumers seems to go out the window when they are chasing votes.
A current case in point is Queensland Labor.
One might argue that Campbell Newman caught them on the hop with his swift lurch to the polls at the end of this month, but Labor’s energy policy statement gives the impression of having been written a while back and parked until the election was called.
In terms of the east coast wholesale market, one of the big announcements from Labor leader Annastacia Palaszczuk is that, in the unlikely event her party wins the State election (given how much ground it would have to make up to achieve government), it will merge generators CS Energy and Stanwell.
As a senior figure in the eastern Australia energy business said to me yesterday: “Imagine the NEM operating with one giant generator in Queensland! What would that do for competition and consumer prices?”
Even more to the point, why has Labor launched itself on such a path, and included a nod to “consulting” with the Australian Competition & Consumer Commission, when it is already clear what the ACCC thinks?
This, paraphrased, is what the commission chairman, Rod Sims, had to say when Newman announced back in October that he planned, assuming the Coalition is re-elected, to sell both CS Energy and Stanwell: The commission is concerned that the Coalition move would be giving the private sector control of 65 per cent of the State market. This would be the most concentrated State market on the mainland. The problem with this is that, if there is not a good competitive market, prices “will be higher than otherwise.”
Sims added that, “in a very low-key way,” the commission had let the Newman government know its views.
There is the potential, Sims also said in a speech to the Energy Users Association, that entrenching an uncompetitive market structure will “damage competition, consumers and the long-term health of the economy.”
That’s the wholes east coast he is talking about.
A preferred approach, Sims said, would be creating three competing Queensland power businesses – but here we have Labor wanting to rush back to the future (think Queensland Electricity Commission, an entity broken up by Wayne Goss when leading the party as part of the electricity reforms he, Labor Prime Minister Paul Keating and Nick Greiner helped to drive to create the east coast wholesale market).
Sims has also been in the media earlier this month, predicting that the federal government’s “root-and-branch” review of competition laws will push for the privatization of State-owned electricity businesses.
Relinquishing control of these and other long-held government assets in the States, he said in a newspaper interview, will be “the most important driver” of how Australia improves national productivity.
He argued that Australians would be paying less for electricity today if the electricity sector – and here he is referring in particular to networks – was wholly in private hands.
Specifically, he asserted that there “can’t be any doubt” that energy prices in Queensland would now be lower if the private sector owned the network businesses.
State Labor, on the other hand, while promising to “negotiate” with the ACCC, proposes to merge all three Queensland network businesses – Energex, Ergon Energy and Powerlink – in to one government-owned corporation, claiming this will lead to “efficiency savings.”
This move, claims Annastacia Palaszczuk, is going to contribute to a grand plan to “restore Queensland as the leading State, the country’s engine room.”
How odd it is, at least to me, that all those highly-paid political reporters now deluging us with their opinions about the Queensland election (which seem to be focused remarkably often on the perceived failings of the Coalition, State and federal) can’t seem to find time to observe that the Labor power plan has already been torpedoed by the regulatory watchdog looking after long-term consumer interests.
How odd, too, that the Labor leader has still to be challenged by the media to explain why she is right and the independent competition umpire is wrong.
Uninvestable has become a new buzzword in the Australian electricity debate.
It is being used currently by energy analysts Bloomberg New Energy Finance to highlight an 88 per cent fall in renewables investment in Australia between 2013 and 2014.
Mark Butler, federal Labor’s spokesman on the environment and climate change, has seized on Bloomberg’s report to accuse the Abbott government of an “anti-renewable ideology” and of being the main cause of the fall in investment.
In doing so, he ignores the critical issue highlighted by the Energy Supply Association before Christmas.
ESAA pointed out that the problem is significantly bigger than just a lack of renewables investment.
The entire generation sector, it argued, is “uninvestable” or “unbankable” as a result of constant policy changes and distortions from successive interference by governments.
The association has published a survey of major banks and other investors which, in its words, shows that “they are simply unwilling to invest in any new generation projects of any type for the foreseeable future because chronic over-supply (of capacity in the east coast wholesale market) and weak prices (for generated energy) mean their investments will only lose money.”
ESAA also notes that the Climate Change Authority, which produced yet another review of the renewable energy target in December, “spoke to financiers but was unable to report that banks believe the current loss of investor confidence can be resolved by tinkering with the RET.”
The association is calling on mainstream politicians to develop national energy policy that incorporates a long-term, credible strategy to reduce greenhouse emissions, restores the “bankability” of the sector and “does not destroy the balance sheets of businesses needed to underwrite the transformation” (of the power generation sector to a less emissions-intensive state).
There has been barely three weeks between this statement and Butler’s opportunistic seizing on Bloomberg report about 2014 renewables investment.
Has a hangover from the festive season clouded his memory or is he demonstrating another example of politicians ignoring what ESAA describes as “the elephant in the room” to score points?
Bloomberg’s local spokesman, in fact, has acknowledged the broader problem.
He is quoted, albeit well down in some stories in the media (bearing in mind the notorious public habit of reading headlines and only a couple of opening sentences in newspaper reports), as saying the investment damage is not confined to renewables “but affects all large energy investments.”
The Butler/Labor line is that “investment confidence has been smashed by Tony Abbott’s decision to walk away from his previous support for renewable energy.”
Labor, it asserts, is “committed to a strong and sustainable renewable energy sector.”
This doggedly ignores the bigger picture – one in which, for example, production from lower-emitting gas-fired generation, a technology explicitly supported by Labor policy in Queensland and welcomed by its governments in Victoria and New South Wales in the past decade, is expected to fall two-thirds by the decade’s end.
Between 2007 and 2013 gas-fired baseload and peaking plant accounted for almost half the generation capacity added to the east coast market. Labor’s Queensland gas scheme, launched in 2005, had lots to do with this.
There is a paragraph in Alstom Australia’s submission to the CCA’s RET review that Butler, and others in the body politic who are serious about national energy policy as opposed to tooting ideological or political trumpets, should read and absorb.
It says: “Typical power generation investments, whether renewable or thermal, are large in nature (and) long-life assets (25 years and more) with commensurate investment horizons. They require a supply and support industry with similar long-term commits to invest in R&D, capital and people to be able to build, operate and support these assets over their working lives. Undertaking such investment requires policy certainty. Where investments come from overseas, sovereign risk issues arise with frequent, major changes in policy.”
Alstom goes on to specifically cite the RET developments in 2010 – firstly to allow highly subsidized rooftop solar, then reversed to create the current small-scale measure after a “consequential collapse in large-scale (renewable) investment – as highlighting what sudden policy changes with unintended consequences can do to investment certainty. And who, Mark Butler, was in office federally (and, for that matter, in the east coast States and thus dominant in CoAG) in 2010?
In its energy white paper submission, Alstom deals strongly with the gas generation issue and adds that the end-result of a lack of adequate holistic policy responses will be “mostly coal-fired generation coupled with additional renewables capacity.”
The consequences, it warns, will include a raising of the emissions intensity of the generation portfolio, the loss of flexible gas plant to assist in the management of “demand transients,” the write-off of recently invested capital and the need to reinvest in major base load generation sooner due to the old coal power stations having less remnant life than newer gas turbine units.
ESAA, in its submission to the CCA in December, points out that there is around 10,000 megawatts of excess capacity in the east coast market today. “This is suppressing wholesale prices and making investment difficult – more recently the association says impossible – in all technologies.”
The RET issue, it adds, needs to be considered as one part of what ails the energy market as a whole.
The association also underlines a consequence lurking down the road that keeps getting ignored in the political argy-bargy: if the point is reached, it says, where paying the (RET) penalty price represents the least-worst option for electricity businesses compared with underwriting uneconomic new renewables plant, “it will be a substantial policy failure.”
This is a serious challenge not just for the likes of Abbott, Ian Macfarlane and Greg Hunt on the current government side, but for people like Butler and Bill Shorten and the leaders of State governments whose communities will be on the receiving end of such failure’s price impacts.
As it happens, the majority of residential and business electricity accountholders – 5.6 million out of a 9.4 million east coast total – are in Queensland and NSW, which are holding elections at the end of this month and the end of March respectively.
Security of electricity supply is a here-and-now issue for all of them.
Certain policy, as asserted by Alstom, ESAA and others, is the essential ingredient for this.
Nothing about Butler’s reaction to the Bloomberg report suggests he and Labor have their attention on the big picture at all.
Do you remember that, back in October, the Senate (urged on by the Greens’ Christine Milne and the Palmer crew with Labor happy to play along) voted to hold an inquiry – to quote the ABC – “in to whether the gold-plating of networks is artificially driving up the cost of electricity?”
The terms of reference for the Standing Committee on Environment & Communications are actually shorthanded on its website to: “How electricity networks companies have calculated and presented costings and infrastructure changes and the effects on energy users, including anomalies, possible rorting or discrimination.”
The inquiry attracted 54 submissions but little media attention (outside Brisbane – where the Courier-Mail appears to be on a small witch-hunt against Energex) after the initial coverage.
A starting point for thinking about this exercise might be the fact that the power sector has been the target of 17 separate inquiries since 2010, including two energy white papers (one still to be written), a Productivity Commission review and another Senate inquiry, initiated by Julia Gillard’s government, in to electricity pricing.
Whether they are all necessary is a matter of opinion. So is what most of them have delivered in outcomes.
One value is that, among the inevitable dross attracted by these inquiries, there is always brainfood, potentially useful background information and serious points of view to ponder.
Among the responses to the Senate is one from Major Energy Users arguing that the real problem is weakness in the national energy rules under which the Australian Energy Regulator, overseer of network budgets, acts.
It wants the current “propose/response” model of regulation ditched and a return to the “receive/determine” model used before 2006 (“before the explosion in network prices”).
The AER, it adds, should require networks to consult with capital-intensive businesses in competitive markets and for benchmarking to include performance standards from the competitive sector.
The Energy Users Association wants the networks regulated asset bases (RAB) revalued “to more appropriate levels.”
And it argues that the current rules require the AER to ignore the fact (it asserts) that government-owned networks are “funded by low-cost State government debt.”
There is, it adds, a “very strong case” for all DBs to be privatized and for the sale or lease of the networks to exclude funding from State Treasury-provided debt.
Gentailer EnergyAustralia takes up the RAB issue, too.
It cites New South Wales, where, it says, the asset base has doubled since 2000 and network charges have risen 130 per cent since 2007-08 while the Victorian RAB for privately-owned networks increased by a third.
“No business, nor government, likes to write down the value of assets,” adds EnergyAustralia, “but it is clear that, given falling demand and little or no growth forecast before 2025, it is necessary to bring about relief for NSW and Queensland consumers.”
It says a write-down to reflect a more accurate value is likely to increase the number of potential network buyers in the two States and perhaps the DBs’ sale prices.
The Energy Networks Association, on the other hand, warns that intervention of this kind, based on modelling it commissioned and published last year, could change the cost of new capital investment so that customers incurred aggregate extra costs of $345 million to $915 million over the next five years.
The Australian Energy Regulator also cautions against an asset write-down policy.
Changing the regulatory treatment of long-life assets after just a few years, it says, “may create significant sovereign risk issues” for networks and disincentives for future capital investment.
It would as well, AER adds, “increase the complexity, costs and resourcing of the regulatory process” by requiring it to take “a very detailed role in approving service providers’ projects and plans.”
(The submission includes an estimate that east coast network investment over the five-year regulatory period now ending has amounted to $6 billion for transmission systems and $30 billion for the DBs.)
The Australian Energy Market Commission also sounds a cautionary note.
It is important, the commission asserts, to give recent reform measures time to be “thoroughly implemented” and judgments about the network businesses should be made on how they respond over time to new requirements.
The federal Department of Industry has responded to questions from the Senate committee by arguing that the existing power of the AER, and associated penalties for misleading the regulator, are sufficient and there is no need to set up an independent body, as is being suggested, to investigate and prosecute “rorting.”
The department says it believes the current oversight system for networks is adequate and it also points out that a review of governance arrangements for energy markets is to start next month under the CoAG umbrella.
On the write-down issue, the department observes that doing so against capital expenditure approved in the past by the regulator will come at a cost to be borne by taxpayers (where governments own the networks) or shareholders.
“This introduces a new risk which places upward pressure on the cost of capital, so may be inconsistent with the goal of minimizing costs for consumers in the long run.”
It’s hard to see the Senate committee actually coming up with anything that really matters in terms of hard outcomes except for one thing: tucked away in the terms of reference is a question as to whether the AER “has actively pursued lowest-cost outcomes for energy consumers?”
At a time when the role of the AER is still in play in the CoAG process, there is potential here for an unhelpful commentary from the regulator’s perspective.
It would be ironic if the only one to really get bitten by this left-over political ploy from 2014 is the watchdog.