Watchdog barks at quick fixes

The blockbuster report on electricity prices from the Australian Competition & Consumer Commission was always going to land with a crash in the media and both the document itself and today’s tsunami of journalism following it are no doubt weighing on Malcolm Turnbull and his cabinet energy committee as they face a week in which they seem to have committed themselves (probably unwisely, given the amount of unfinished preparatory business) to stand and deliver on energy policy.

The media all have their own angles, reflecting their pursuits of the past year, but perhaps the one that will catch the attention of ministers most sharply today is an ABC report that “ACCC chief (is) sceptical clean energy target would reduce power costs.”

The broadcaster highlights Rod Sims saying it is “arguable” whether the CET would have this impact, as claimed in the Finkel report.

That’s about politics, which is a vital aspect of the “energy crisis” game but far from the only one.

If the ministers want a fast summary of what Sims & Co are saying, they should go to page 151 of the 170-page report – where the ACCC focuses on four points.

First, it says, there appears to be insufficient competition in generation and retail markets, which both raises prices and increases barriers to supplier entry. “The lack of availability and high price of gas has also increased the price of electricity.”

Second, and no surprise given the work of its acolyte, the Australian Energy Regulator, it declares “there appears to have been over-investment in network operations” as well as inefficient cost recovery and higher than warranted rates of return due to the network regulation framework. “Some of these costs represent a continuing burden on consumers.”

Third, the ACCC says, “some measures to improve environmental sustainability have been overly generous and poorly targeted, with outcomes that appear inequitable.”

And finally, it sees retail deregulation as “benefiting some and hurting others.” This market, it adds, is “exceptionally complex” and consumers have no ability to exit it. “We need to ensure that that consumers have the tools to enable them to make informed decisions about their electricity services.”

As is being picked up and headlined in the media, the commission dumps on energy retailers, and especially the “big three,” for confronting mass market consumers with “unnecessarily complex and confusing behavior” – which it declares appears in some cases to be “designed to circumvent regulation.”

In summary, says the commission, “solutions to (the) affordability problem will not be straight forward; nor is there a ‘silver bullet’ that will address all problems.” (As Jennifer Hewett observes in the Australian Financial Review today, this is not especially helpful to a government “facing demands for urgent action and easy-to-understand ‘fixes’ – not to mention a few more three-word slogans.”)

The ACCC also comments: “Some mistakes of the past are beginning to be unwound while others, unfortunately, will affect electricity markets and consumers for decades to come.” (My emphasis.)

It finds that power bills for the mass market have risen by 63 per cent on top of inflation since 2007-08. It also points out that Queenslanders are paying the most, followed by South Australians and people living in New South Wales. Victoria, the spearcarrier for privatization and deregulation, so much demonized in recent debate, has the lowest bills.

And it is worth highlighting this snippet from the media statement Sims has put out this morning: “There is much ill-informed commentary about the drivers of Australia’s electricity affordability problem. The ACCC believes you cannot address the problem unless you have a clear idea about what caused it.” I don’t see that featuring prominently in today’s media………….

There is also this fierce shoulder charge in the report for the body politic: “Over the past decade successive (national and State) governments have failed to balance competing priorities of security and reliability, universal access to affordable energy services and reduced emissions, often making decisions with limited regard to (their) impacts on the overall affordability of electricity. These decisions, combined with other regulatory and business decisions, have led to higher prices for all users.”

This should not be allowed to slip through to the keeper. It’s a damning indictment of both sides of mainstream policymaking and the politicians far too often are allowed to point fingers elsewhere.

In passing, because so much fuss has been made about the point, it is worth noting that, while Australia’s international electricity cost position has “deteriorated substantially” (says the ACCC), the commission records OECD data showing that we have fallen from the fourth cheapest in 2004 to the 10th cheapest in 2016. As the commission notes, there are many and varied ways of considering price comparisons, but the essential point is (to quote it again) “on any measure, it is clear (our) prices have gone from being a source of competitive advantage to a drain on business productivity and a serious affordability concern for households.”

Stand far enough back, shove the politicking aside, and this is the fundamental issue for policymakers across the federal system but especially, of course, for the national government.

The challenge confronting Turnbull and his ministers right now, at a time of considerable political weakness for their government, as the opinion poll dirge dogs its every move, is to demonstrate that they are doing something meaningful to halt the downward slide and, in particular, to alleviate voter (ie household) unhappiness while explaining there is no one bound that will free us from this situation. Turnbull & Co cannot achieve this on their own and the State governments, mostly run by their opponents, are more hindrance than help.

Right now, the most important of the many slogans derivable from the watchdog’s report that could be daubed on the cabinet room walls in Canberra, and where else politicians gather to mull energy matters, is “there is no silver bullet” and the community needs to be told so. The message will not be greeted with cheers but Australians need to understand it to save us from being sucked in by more snake oil salesmen offering cures that will only make things worse.

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