Wrong place, wrong time

It must have been obvious to Australia’s energy retailers for at least the past year, and perhaps rather longer, that the game is up with “standing offers” for households in an environment where power prices are rising towards the top of the political agenda.

The companies’ position has been that the remedy is in the hands of the customers remaining on these “offers” when all they have to do is find a market deal that will save them money. But suddenly, confronted by a desperate federal government in the wake of the Wentworth by-election, the retailers are right under “big stick” politics with, in some cases, their very structures under threat if they do not accept fast-tracking destruction of what the Morrison government is labeling their “loyalty tax.”

The industry’s leadership is summoned to a November “roundtable” meeting with Energy Minister Angus Taylor where it will be pressured to implement reductions in “standing offers” by New Year’s Day rather than waiting for the “default tariff” decisions of the Australian Energy Regulator which the government has now also set in train – and which are intended, if pursued, to take effect on 1 July.

It is reported in the media today that the retailers are “frustrated” they are being singled out for attention when the focus should also be falling on rooftop PV subsidies and network costs. Well, that’s politics, folks.

Taylor has signaled that a move to abolish solar subsidies – raised by the Australian Competition & Consumer Commission – is not going to be pursued. In an interview with The Guardian newspaper, he says the government has “no plan” to change the small-scale renewable energy scheme (or the RET for that matter), a tacit acknowledgement that any such step is in the “too hard” basket ahead of a federal election the bookies and the pundits say Scott Morrison can’t win.

(In passing, the bookies and the pundits are probably right, but a glance at the history of federal politics since 1993 should remind all concerned that no election is in the bag until the votes are counted. In a box in a cupboard somewhere I still have The Bulletin’s infamous cover asking “Why does this man bother?” some time before the 1996 poll delivered John Howard to the prime ministership for 11 years – in marked contrast to John Hewson, seen by the pundits as a shoe-in in 1993, or Mark Latham in the run-up to the 2004 election.)

Meanwhile one retailer source, who declined to be named in the newspaper interview, has declared overnight “They are demonizing the retailers because we are an easy target.”  That’s exactly right but surely this was foreseeable?

The underlying point is well illustrated by comments from Rosemary Sinclair, CEO of Energy Consumers Australia, who was on radio on Tuesday accusing the retailers of creating a “confusopoly” of offers and discounts that has left customers who, for whatever reason, don’t choose to play in the market “worse off for too long.”

She added: “Over the past three or four years, the standing offer has just risen and risen to the point where it is no longer providing the safety net it should be providing.”

The 3AW radio station promptly labeled the interview in its web publicity “Confusopoly of energy markets leaving Australian households in the dark.”

And the ACCC chair, Rod Sims, was also right on hand to tell media that the Morrison government’s proposal will save small businesses “at least $1,000 a year” and households on “standing offers” between $200 and $300 annually. That small business point is not trivial when you consider where the Coalition must pitch its pleas for re-election.

“Consumers are completely confused now,” Sims added, echoed by Angus Taylor declaring “We need to get the energy companies under control to stop the rip-offs; for too long consumers have been getting a raw deal.”

Here’s Sinclair again on the ABC: “It will be very, very worthwhile because the consumers affected most by this are those most vulnerable to energy prices.”

Of course the Australian Energy Council is out and about saying on behalf of the gentailers that price re-regulation “is not the answer” and casting doubt on how many householders will benefit and how much they will save. (It uses ACCC data to suggest $105 to $165 annually, far below the $832 figure waved around by the Prime Minister – which is at the top end of the scale in one State only). But this horse has bolted for the retailers and, however grumpily, they will have to accept political reality.

The lesson here for the supply business is that it is better to do these things yourself rather than having them done unto you by politicians; the “national energy guarantee” was seemingly seen as an umbrella to avoid too much rain on this profitable patch but once Turnbull collapsed under pressure (taking Wentworth with him) there was nowhere left to hide. And the pain is now being reflected on the stock market, too.

All of the above is not to deny that the Business Council has it right when it warns that “ad hoc intervention in the energy market, such as underwriting generation investment or forced divestment, is sending a signal to the world that investing in Australia comes with considerable risks.”

International energy investors hardly need to be told this – it has been apparent now for quite a while –  and the ensuing risks for our economy are real, but they still keep investing here where they can see the potential for gains (eg in renewables thanks to the RET and other State and Territory interventions to boost wind and solar) and the “big stick” of divestment is mostly (right now) a threat to the “big three” retailers.

Of course, the bigger picture will still be there when Morrison, Frydenberg and Taylor have wrung whatever they can get out of the retailers in the days and weeks ahead. In this context, I recommend going on to the EnergyAustralia website and reading CEO Catherine Tanna’s address to the Financial Review’s energy conference earlier this month. I think she did a pretty good job of talking about the overall issue in plain language.

Her comments include this: “Remember the trilemma? Affordable, reliable and cleaner energy….. it’s like a three-legged stool. Balance on just one of those legs for too long and eventually the stool topples over. The energy system breaks and it breaks badly.”

The talk needs to be read as a whole but in it Tanna acknowledges that “the entire electricity chain, including retailers, is culpable in a failure to provide affordable, reliable and cleaner energy – we’ve let down families and businesses across the country.”

She naturally gives the body politic a tongue-lashing for a collective failure to come up with a workable policy and she then adds: “No one’s hands are clean. There is more than enough blame to go round.”

The problem for her company and other retailers is that right here and now the federal government needs a scapegoat for the populist barbecue – and, by not resolving the “standing offer” shambles long since, the suppliers find themselves today in the wrong place at the wrong time.

Many decades ago my granny used to tell me “you remember, there are always consequences – not only for what you do but for what you don’t do.” Retailers today are confronted by the truth of this.

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