Running out of time

Two years ago this month Josh Frydenberg (then Environment & Energy Minister) defined the challenge like this: “It is a big job to ensure stability, security and reliability in the energy system while at the same time balancing the costs to industry and consumers and the need for a transition to a low carbon, low-emissions economy.”

This November, as the government in which he is now Treasurer limps towards what most in the media commentariat are portraying as inevitable election defeat, the “big job” remains nowhere near done. Labor is presenting itself as in far better shape to deliver on it and the government appears to be running out of time.

Writing in The Australian, Frydenberg’s opposite number, Chris Bowen, declares: “Labor is the only party capable of delivering a coherent and consistent energy policy. In all my meetings with business — big and small, Australian and multinational — there is one theme to my discussions: the biggest challenge facing business is energy prices and the lack of a national energy policy to engender the investment in generation necessary to put downward pressure on prices.

“Of all the negative consequences of the revolving door in personnel of the government and the policy dysfunction we have seen, the lack of a national energy policy is probably the most significant. It is clear the Liberal government is pathologically incapable of delivering an energy policy for Australia. It will be left to a Labor government to deliver one.”

His colleague Mark Butler, Labor’s climate and energy spokesman, has added a call for the Coalition and the Opposition to “negotiate a bipartisan policy to start to expand renewable energy, bring down carbon emissions and bring down electricity prices as well,” clearly a mantra for the federal poll.

For the beleaguered Morrison government, 18 December is now an important date for its energy policy standing. This is when the last CoAG Energy Council meeting of 2018 will be held – on the other side of the Victorian State election presently under way – and when the Australian Energy Market Commission will deliver a report on the retailers’ “standing offer” for the mass power market, labelled a “loyalty tax” by the Coalition.

The AEMC was directed by the October Energy Council meeting to report on the alternative “default offer” approach recommended by the Australian Competition & Consumer Commission.

Morrison and his Energy Minister, Angus Taylor, say the “default offer” approach will mean substantial savings for the “ripped off” mass market — and it seemed for a little while at the end of last week that the government had muted the “big stick” approach, threatening retailer divestment to get their way before the election.

After having had a lot to say in the run-up to last Wednesday’s “summit” meetings in Sydney with the electricity supply leadership, Taylor and the government had been somewhat coy about the outcomes of the discussions. But the divestment row has returned to the headlines overnight with, as The Guardian puts it, the retailers foreshadowing a potential lawyers’ picnic if the government pushes on down this road.

(An interesting quote from a “summit” participant was published in the Sydney Morning Herald,  AGL Energy’s Brett Redman telling the paper that “the elephant in the room was the one thing we couldn’t talk about, pricing.” This, of course, is because a collective move by the retailers to lower bills on 1 January, as demanded by the government, could amount to illegal collusion under competition laws.)

Essentially, leaving aside the “big stick” row now re-emerging, where the federal government is left today is with needing to use next month’s CoAG meeting to enlist State and Territory government support for the “default offer,” requiring a change to the NEM’s electricity law, or, failing this, going it alone and seeking parliamentary approval in Canberra for legislation to put in place a price cap.

Overnight, reacting to energy industry criticism of the legality of what is being proposed, Taylor told journalists: “The government is preparing a comprehensive legislative package to hold the big energy companies to account and stop the ripoffs. The ‘big stick’ legislative package will be introduced to parliament in coming weeks.”

Earlier, the Australian Energy Council, representing gentailers, had summed up the situation’s politics in a website commentary: “Unless the federal government can find a legislative pathway to implement the ‘default offer’ prior to receipt of the AER advice due by 30 April 2018 (and assuming COAG doesn’t agree to implement it in December), then there will be no implementation prior to the federal election.  Although the Labor opposition supports the ‘default offer’ in principle, it is not clear whether they would be keen to assist the government to legislate it prior to a likely May election.  The Greens (who would prefer much more aggressive price regulation) have already labelled the policy a con.”

The suppliers’ solution is for a “reference rate” to be implemented, something the AEC claims has “almost unanimous support” in the sector.

“A reference rate,” argues the AEC, “would deliver the same benefits of simpler comparison of offers that the ‘default offer’ would and encourage customers to get on the cheapest deal possible. Discounts would all be calculated off the same base rate, so you would know quickly and simply whether your deal was the best for you.

“The reference price,” it adds, “still allows retailers of all sizes to recover their costs, and structure their offers in ways that suit their customers’ needs. In a way, you get all the benefits of the default offer for 90 per cent of the customer base without the negative long term consequences that undoubtedly come from price regulation.”

And it asks: “Should we really be implementing a change that results in a few customers paying a little less at the expense of all those who have shopped around and found a better deal?”

In a media statement after Wednesday’s “summit,” Angus Taylor said he welcomed “the initiative by energy retailers to establish a voluntary comparison rate for power prices” as “an outcome” of a “constructive” meeting.

This, he added, is “an important first step.”

He said retailers would establish a working group to implement the voluntary comparison rate, with the assistance of the Department of Environment and Energy.

So far, so good, it seemed — and then the “big stick” issue re-emerged on Monday.

Where all this is going in terms of convincing voters that power price relief is on the way can only be guesswork but it still seems fair to say that the 18 December meeting will offer the Morrison government one of its last remaining stepping stones towards something it can portray as a win.

With respect to which, I see a letter in the Australian Financial Review asserting that “energy management in Australia is nowhere near a situation where certainty of supply and affordability to business and other consumers is in sight.” It’s hard to argue with that.

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