Week of mixed blessings

This has turned in to a big week for the east coast power supply sector, no two ways about that.

And, as one senior energy industry figure said to me yesterday, it’s a week of mixed blessings.

On the downside, the decision by the new Palaszczuk government in Queensland to defer electricity retail deregulation in the south-east corner of the State for at least 12 month is, in a word, daft.

It up-ends almost three years of bipartisan work via the Council of Australian Governments, aided by the Australian Energy Market Commission, to help transform the marketplace by introducing creative rivalry for consumer dollars and genuine choice of supplier for customers, enabling real cost savings.

On this issue, it is right to accuse the three-month old Queensland government of making up policy on the run, setting up yet another inquiry as an excuse for not taking a necessary step in transforming the power market because the exercise contains some perceived element of risk.

One thing for sure, the move deprives householders in the Energex franchise area of millions of dollars of aggregate savings that could have been achieved in 2015-16 through shopping around, the AEMC having estimated the benefit as up to $475 a year each.

Not all householders would have pursued this, but the gain in the next financial year for those who did is now gone and not able to be recovered.

I wonder why it hasn’t occurred to local media that an appropriate headline could be “Palaszczuk ploy pinches $millions from families”?

There are 3.2 million people living in the Energex area and about 1.1 million residential accountholders.

Whether the even bigger decisions of the Australian Energy Regulator, in network determinations announced on Thursday, is a win or a loss depends on where one is standing.

For consumers, especially in New South Wales and the ACT, the final AER decisions – although they could be appealed by the networks to the Australian Competition Tribunal – are an unalloyed budget plus to the tune of about half a billion dollars annually cumulatively for the next four years.

For the architects of regulatory reform, the AEMC and the CoAG energy ministers from 2012 to 2014, the determinations are reinforcement of their belief that the changes would deliver significant consumer benefits.

For the trade union movement, the decision foreshadowing 2,500 member job losses (and perhaps more) in NSW – as the regulator requires the featherbedding of recent years to be slashed and burned – are big blow.

The degree of difficulty union bosses will have in fighting the cuts in the court of public opinion is best illustrated by the NSW Labor leader, Luke Foley, opting to support lower prices for consumers rather than the Electrical Trades Union’s fierce opposition.

The media seem convinced the AER determinations for Ausgrid and Endeavour Energy and also the transmission business, Transgrid, represent a body blow for Premier Mike Baird’s privatization plans for the trio because this, they assert, is likely to result in lower sales income for the government – but I reckon this is open to question: how will potential buyers view a situation where the regulator’s decisions are doing the heavy duty house cleaning work for them, with the grid users sharing benefits?

It wouldn’t be the first time, conventional “wisdom” has turned out to be facing the wrong way.

Even if the Baird government decides it won’t sanction the DBs taking the AER to the Competition Tribunal (in effect the Federal Court), a challenge may still be forthcoming with a ripple effect for all concerned: the part-privatised ActewAGL is giving the impression of being determined to pursue a court hearing, calling in to account the regulator’s mode of benchmarking and view of the cost of capital as well as whether the determination takes a suitable stance on grid safety and reliability requirements.

Apart from its NSW and ACT final determinations, the AER has also published draft decisions on network revenue-raising for South Australia and Queensland.

The Energy Networks Association sums up the overall situation by saying the AER proposes total funding reductions across affected network businesses of $6.5 billion or $100 million a month.

ENA’s John Bradley acknowledges that the decisions have to be seen against the “perfect (price) storm” created for consumers by the 2009-14 determinations of network charges, taking in to account the impacts of the GFC on global capital markets, major replacement of aged assets and a view of the direction of power demand that turned out to be wrong.

The need now, Bradley argues, is for the regulator to balance good news for consumers with the service impacts of its proposed opex and capex cuts.

He repeats the DBs’ charge that the AER has locked itself in to dramatic cuts in in NSW and ACT operating funding – 24 per cent over five years – without “clearly demonstrating that adverse impacts on safety, maintenance and outage response times can be avoided.”

Meanwhile, the new AER chair, Paula Conboy, is telling the media that the NSW and ACT network decisions are colored by “a consistent body of evidence” that these DBs “are not operating as efficiently” as private sector businesses.

Not all are biting their lips over the regulatory developments.

South Australian Treasurer Tom Koutsantonis, who also wears the State’s Energy Minister’s hat, is delighted by the AER’s draft decision affecting SA Power Networks – which the regulator claims will see average State household bills fall $200 annually and small businesses saving $380.

Koutsantonis is urging South Australian residential customers, once the cost cuts are finalized, to take further advantage by using the State’s retail price deregulation to shop around for the best deals.

That’s not something his Queensland counterparts can offer.

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