Wake in fright

I wrote in the “Last word” segment of my latest monthly Coolibah energy newsletter that a very large issue for the CEOs in electricity retail – essentially the gentailers – is what they can do in a relatively short time to change the “vibe” only too clear in reports piling up on political leaders’ desks about consumer sentiment on energy services.

Now this weekend brings Barnaby Joyce and others urging the Prime Minister to call a royal commission in to the sector, following a claim in the Herald Sun newspaper that the retailers are worried federal Labor will propose this as part of Bill Shorten’s populist pitch to battlers in the community.

Craig Kelly, chairman of the Coalition’s backbench energy committee, is asserting that the pending report on electricity prices by the Australian Consumer & Competition Commission could be the trigger for such an inquiry – which he adds should also look at the networks. Other MPs are making similar noises and The Australian reports this morning that Environment & Energy Minister Josh Frydenberg is declining to comment.

As far as I am concerned, the surprise in this situation is why the leaders of electricity supply are only now waking in fright to the prospect of a royal commission, the more so after the events leading up to the current banking inquiry, which is trashing and burning the reputation of that industry.

The issue for Malcolm Turnbull, Frydenberg and Treasurer Scott Morrison, it seems to me, is “why not” rather than “why,” given that the federal government itself was burned in the political marketplace by perceptions that it was dilatory about throwing the bankers to the wolves. The political pressures of the current by-elections campaign – where the government could pick up as many as three seats and seriously wound Shorten – may not be a minor factor in the government’s thinking.

As with everything in politics, there are multiple layers to this game. Once a royal commission is called – by the Governor-General on the advice of the government – it can’t be stopped so the terms of reference need very careful crafting. Its hearings are fully in the public domain with very little leeway for evasion under oath by witnesses, as the bankers are discovering, but eventually such reports weigh on politicians to take action to give effect to their recommendations.

The community appeal of taking this route is that royal commissions are perceived as a means to ensure fearless and comprehensive reviews of significant problems.

We have been rolling up to this point for years – in fact, I’d suggest, since Prime Minister Julia Gillard told an Energy Policy Institute forum in Sydney “the bad news is, today, Australians are paying more than they should for electricity; the good news is that we can do something about it.” That was on 7 August 2012 and who could claim things have improved since then? It’s a salutary thought that Turnbull is the fourth prime minister to wrestle with the issue (Gillard, Rudd and Abbott being the others).

Some of the writing on the wall for the current crop of energy executives was provided back in February this year by Rosemary Sinclair, CEO of Energy Consumers Australia, when she pointed out in a newspaper op-ed that a report her organization had commissioned found only 21 per cent of people polled declared confidence the electricity market was working for them – and a majority thought they were getting less value for money than from the banking and insurance sectors. This, wrote Sinclair, “should send a shudder down the spine of the leaders of all energy companies – if you are making an industry that is the subject of a royal commission look good, you know you have a problem.”

And she added: “The curtain must close on a decade in which price increases have been the norm.”

Since then, of course, we have the Grattan Institute telling us that federal and State politicians must be honest and admit that high wholesale power prices are now “the new normal.”

The institute’s Tony Wood wrote in a recent newspaper op-ed: “Our report exposes a nasty reality: new supply, whether coal, gas, or renewables with back-up to cover intermittency, is more expensive.” He added: “even if more subsidized renewables do lower prices, this will be transitory because more closures (of coal plants) will follow and the full cost of the intermittency of wind and solar electricity will emerge.”

In their mental writhing over how to deal with situations like this, politicians tend to look to the messages they are getting from their constituencies and I am interested to see the Queensland Farmers Federation declaring that, the banking royal commission having “laid bare the finance sector’s misdeeds, it is only a matter of time before the calls for greater transparency and accountability in the energy sector are acted upon.”

The next step is publication of the ACCC’s final report on electricity supply and prices – which presumably was delivered to Treasurer Morrison on 30 June as scheduled. One of the key matters Morrison required to be considered in setting up the review was “the existence of, or potential for, anti-competitive behaviour by market participants and the impact of such behaviour on electricity consumers.”

As the ACCC chairman, Rod Sims, said in a speech in May, the commission is legally bound to keep the report under wraps until the Treasurer releases it, but he gave a strong clue to its direction when he concluded in that talk: “The energy market is working extremely well for energy companies but is working badly for  users.”

What this report will trigger when published can only be speculation at this stage but it’s highly likely that those calling for a royal commission will find fresh ammunition in its pages.

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