Issue 92, December 2012
Welcome to the final issue of the newsletter for 2012, writes Keith Orchison.
First, best wishes for the season and for the year ahead to all readers. This year has been a monumental one for the energy debate, with a New South Wales parliamentary report on generation, the much-awaited “power of choice” proposals and the Council of Australian Governments discussion of power price issues rounding off a very busy 12 months. Amid all the hustle and bustle, the year ends as it began with energy investors deeply concerned about risk, uncertainty continuing over carbon pricing, governments failing to embrace price deregulation and the network businesses under pressure over the price consequences of their capex and opex budgets.
The greatly-hyped Council of Australian Governments discussion of power supply issues ended with first ministers pledging themselves to help ease price pressures while maintaining a high level of electricity reliability – and by agreeing in principle to transfer responsibility for applying national reliability standards to the Australian Energy Regulator.
With the Prime Minister continuing to claim that “Australian families” will gain $250 per year in power bill relief when the reform process is applied – and holding up a draft Productivity Commission report on benchmarking to support her assertion despite criticism that she should not do so – the CoAG meeting produced little in the way of tangible outcomes for the power sector.
The $250 benefit claim relies on the roll-out of smart meters on the east coast and the introduction of time-of-use charges, and the States have made no genuine commitment to either.
The only certainty for households is that the bills they receive at the end of summer and after next winter will be higher than in 2012 unless they have acted themselves to curb consumption.
A new report from the Grattan Institute, timed to coincide with the Council of Australian Governments discussion on electricity prices, argues that Australians are paying too much for power because the regulation of distribution networks is “broken.”
The report, written by Tony Wood and colleagues, asserts that fixing the system can cut network revenue by around $2.2 billion a year, representing an annual saving for average household accounts of $100 annually.
The institute calls for reliability standard setting to be taken away from State governments and given to the Australian Energy Market Commission and the Australian Energy Regulator.
State government intervention, it says, has required delivery of power at levels of reliability no serious cost-benefit analysis can justify.
The report accuses the New South Wales, Queensland and Tasmanian governments of imposing extra costs to “address perceived reliability problems.” It is vital, it argues, for a national, consumer-centred approach to be developed for these standards.
The Grattan Institute report claims that there are four key areas of network oversight emerging from work by the AEMC and the Productivity Commission where large savings can be made.
It acknowledges that the quantifications are a “crude estimate.”
The institute says the AER should be directed to require networks to only charge for the cost of debt and equity at a level consistent with the risk profile of monopoly businesses – and it should be able to adjust the levels annually instead of awarding them for five-year periods. If this system had applied for the 2009-14 determinations, it says, there would have been a net benefit to customers of $2 billion.
The institute uses data from the Australian Energy Market Operator to claim $190 million annual savings from an improved approach to reliability standards.
Implementing levels of efficiency in government-owned networks similar to those achieved by the private sector, it asserts would deliver annual capex savings of $640 million and operating cost reductions of $500 million.
The institute calls for an annual adjustment of five-year capital needs forecasts against predicted changes to maximum demand.
“If the reduced growth in electricity demand were to continue and only half of the $2.4 billion capital currently planned for new network capacity each year were required, more responsive capital budgeting could save $680 million a year within five years.”
The CoAG Reform Council, set up by the Howard government to monitor how the federal, State and Territory administrations collectively pursue their agenda, says the national commitment to energy reform is “disappointing.”
The council’s chairman, Paul McClintock, who is retiring and will be replaced by former Victorian Premier John Brumby, says the review of east coast retail competition has been delayed and a national framework for rolling out smart meters has not been completed.
McClintock says smart meters lack a high level of community support because “no-one really knows what precisely is meant to be achieved beyond making it easy to read your meter, which is hardly exciting.”
McClintock warns that, overall, Australians are “losing faith quite quickly” in the ability of governments to work together. CoAG, he says, is “at a crossroads.” There is a “crisis of confidence” in the federal system.
Meanwhile major energy retail Origin Energy says that an energy reform plan cannot work unless State governments agree on a time frame to fully deregulate power prices.
Peter Boxall, chairman of the NSW Independent Pricing & Regulatory Tribunal, says retail competition is the best guarantee of the lowest possible prices for electricity.
“Effective competition, where retailers strive to offer customers products and services they value, is the best way to ensure that prices are driven towards the efficient cost of supply.”
Boxall says IPART expects the main driver of NSW cost increases, network charges, will “ameliorate” over the next three years.
IPART is undertaking a review of power prices for NSW over the next three years. Its report is due to be released in May next year – interesting timing in the context of a 2013 federal election in which western Sydney seats are considered by political analysts to be a vital factor.
Energy Australia, which serves more than a million customers in eastern and northern Sydney, the State’s Central Coast and the Hunter Valley, is seeking price rises of 4.5 per cent for 2013-14 and another three per cent in each of the next two financial years.
IPART says that regulated retail electricity prices in NSW have more than
doubled in nominal terms over the past five years, and by around 79 per cent in real terms (i.e., in addition to inflation).
The regulator says two key factors have driven the increase.
The main driver is the charges energy retailers incur to use the networks to transport electricity to their customers’ premises. These charges increased by 130 per cent in nominal terms over five years, adding around $654 to annual household bills. They now comprise more than half a typical residential customer’s annual electricity bill.
The second driver is the increase in green scheme costs, arising from
changes to existing schemes and the introduction of new ones.
“For example,” says IPART, “the carbon price increased a typical regulated residential customer’s annual bill by $167 or 9 per cent in nominal terms.”
Increases to the costs of complying with other green schemes, including the renewable energy target and the NSW energy saving scheme added another $76 to regulated retail bills since 2007/08.
IPART says that there have been more than three million changes of customer affiliation with retail suppliers since competition began in NSW in 2002.
It says the number of small customers moving off regulated prices and taking up market offers has continued to increase. At the beginning of the 2010 pricing determination period, around 66 per cent of small customers were on regulated prices. This has now fallen to about 50 per cent.
The regulator says it doesn’t have a clear idea of why half the small customer base in the State has opted to stay on regulated prices.
These are extracts from an interview between the Prime Minister and an Adelaide radio show host, Leon Byner, on 3 December, the day after Julia Gillard garnered front page newspaper headlines on power price reform based on the introduction on the east coast of smart meters.
“We want to make sure that people are getting a better deal. This isn’t about imposing things on people, making them pay for things, it’s not about that. It’s about putting people in a position where they can have more information and use that information should they choose to do so. No-one should be afraid they are going to be forced (sic) with a cost they don’t want.”
And “People in South Australia know only too well that their electricity bills have been sky-rocketing. People have seen 40, 50, 60 per cent increases. That is not about carbon pricing. That is about problems in our current electricity system, over-investment in poles and wires. Consumers are not getting enough of a say about how the market works.”
And “We face the spectre that power prices just keep going up and up. I want to make a difference to the way in which prices are worked out so we don’t see that continued rapid escalation.”
And “Yes, carbon pricing did cause an increase in electricity prices. We were always upfront that it was going to cause a 10 per cent increase. And so we assisted people with tax cuts and pension increases an family payment increases. What’s really put the pressure on though is the 40,50, 60,70 per cent increases that people have had to try to deal with and not a dollar to assist them along the way.”
The Reserve Bank, in a short review published in November, says inflation in utilities prices has been higher than overall consumer price inflation over the past decade, with large increases in the prices of electricity, gas and water and sewerage.
In aggregate, it says, utilities prices rose 15 per cent over the past year, with the carbon price accounting for a little less than half of the total increases.
Electricity prices rose 18.5 per cent in the year to September, gas prices rose 19 per cent and water and sewerage prices rose 3.8 per cent.
“The run-up in utilities prices,” says the bank, “largely reflects the increase in capital costs associated with higher infrastructure investment. Electricity network operators have made substantial investments to replace ageing assets, satisfy growing peak demand and meet more stringent reliability standards.
“A high level of investment has also been required to expand gas networks and to improve the reliability of urban water supply.”
The Energy Policy Institute of Australia says investors are increasingly nervous about financing projects in this country.
In a commentary on the federal government’s energy white paper, EPIA says the domestic banking industry may be slipping back to a role of little more than a supplier of short-term or bridging finance for renewable and non-renewable generation projects.
Much of the required capital – debt and equity, with the federal government asserting that up to $530 billion may be needed for domestic and export developments by 2030 – will need to be sourced from overseas. “There is no certainty that it will arrive.”
EPIA says it is not enough to attribute investment uncertainty to a lack of bipartisanship over carbon pricing. “More work needs to be done to reduce investment risk and this calls for close collaboration between governments, industry and investors.”
The institute argues that not only the sources of finance but also the means and terms of procurement will need to change.
It has joined with KPMG to research the issue, aiming to report at the Energy State of the Nation conference in Sydney in March.
Two credit ratings agencies, Moody’s and Standard & Poor’s, have warned that proposed changes to power network regulation may harm the sector’s standing if they make revenues less predictable and erode profit margins.
At present, the networks retain an investment grade credit rating despite their high debt levels because of the stability of the regulatory regime.
Standard & Poor’s says that the planned regulation rule changes are “likely to reduce cash flow predictability and consequently weaken the credit quality of network utilities subject to how they are implemented.”
The Australian Petroleum Production & Exploration Association has targeted five “critical” areas for policy reform to attract upstream petroleum industry investment.
APPEA chief executive David Byers says they are: (1) taxation settings must provide long-term stability and address impediments to competitiveness and distortions to investment; (2) energy market reform must allow the full operation of market forces; (3) red and green tape must be reduced and approval processes streamlined; (4) labour productivity must be improved; and (5) fiscal and licensing terms for high-cost, high-risk exploration must be improved.
APPEA has also welcomed the report on electricity generation produced by the Public Accounts Committee of the New South Wales Legislative Assembly because it says that, without the development of new gas resources, the State remains vulnerable to increasing power prices.
Meanwhile AGL Energy managing director Michael Fraser has said that, if new sources of gas are not developed for NSW, “I don’t know where the State is going to get the molecules come 2017.”
Nine new generation projects were added to Australia’s power production capacity in the year to October.
The federal Bureau of Resources & Energy Economics says four wind farms, four gas plants and a hydro-electric development were commissioned, adding 1,546 MW of capacity at a capital cost of $2.5 billion.
BREE adds that 20 projects are at an advanced stage of commitment or construction and will add another 3,017 MW of capacity at a cost of $6.5 billion.
The largest of the completed developments is stage one of Origin Energy’s Mortlake power station in south-west Victoria, with 550 MW of open cycle gas plant commissioned at a cost of $810 million.
The next biggest project completed is the $750 million Collgar wind farm in Western Australia’s south-west. It has a capacity of 206 MW.
The two largest plants at an advanced stage of development are the $597 million Yarnima combined cycle gas turbine project (190 MW) being constructed in WA’s Pilbara by BHP Billiton and the $500 million Diamantina CCGT plant (242 MW) being built in north Queensland by APA Group and AGL Energy.
BREE executive director Quentin Grafton says there are 14 advanced renewable energy projects, 12 of them wind farms, being pursued with a combined capacity of more than 2,000 MW.
The agency has also listed 133 power projects that are undergoing feasibility studies or awaiting development approval of which 91 plan to use renewable resources.
Meanwhile, since the BREE report appeared, Hydro Tasmania has revealed that it is examining a $2 billion project on King Island that would build 600 MW of wind turbines and link them to Victoria with an undersea cable.
Hydro Tasmania says the project, which would occupy a fifth of the island’s land area, could produce 2,400 gigawatt hours of electricity a year, represent five per cent of the mandatory renewable energy target and deliver almost two million tonnes a year of carbon dioxide abatement.
The Queensland government has published a letter from Prime Minister Julia Gillard to the State secretary of the Electrical Trades Union in which she assures him that “the federal government has not and does not advocate for the privatisation of electricity assets – to argue that the white paper supports privatisation is wrong and is not representative of my views or the position of the government.”
Queensland Energy Minister Mark McArdle points to a federal government submission to the recent Senate committee on electricity prices which he says states: “The Australian government has a clear path for better functioning energy markets through the progression of a set of critical reform issues – these include privatising government-owned energy assets.”
In a media release at the end of November McArdle asks “Which statement is false?”
The Senate submission from the federal Department of Resources & Energy says: “continued government ownership of energy businesses is impeding greater competition and efficiency and reduces market confidence by creating uncertainty and risk for private sector investors. “
It adds: “Where governments continue to maintain ownership of their energy assets, the Australian government urges the adoption of transparent and independent governance arrangements operated in a manner reflecting the disciplines upon private businesses.”
The energy white paper itself (page 110) says: “Government participation in energy markets should be minimised; where it does occur, it should preserve market integrity and comply with competitive neutrality policy.”
It adds (page 114): “Government ownership of energy assets may create the potential for conflict in both policy and operational decisions. However, government ownership of energy businesses is a decision for respective governments.”
The federal government’s energy white paper rejects the argument that the reform process has led to higher prices.
It says: “Energy prices in Australia generally remained stable and low through the late 1990s to around 2007. Recent price rises largely reflect a combination of increasing production costs and the high point of an investment cycle in energy infrastructure.”
The white paper also debunks the argument that deregulation means a lack of oversight and loss of consumer protection. ‘Australia energy consumer protections are generally higher than in many other markets,” it says.
A new energy policy paper from the Committee for the Economic Development of Australia, launched in mid-November, has called on the federal government to quantify the value of renewable energy sources for mitigating carbon emissions over the long term so that the money expended on them matches their social value.
In a roadmap of steps to be taken to drive domestic and export energy outcomes for Australia, CEDA has also called for an end to “ad hoc decision-making” on renewables, replacing it with a rigorous methodology that accounts for the risks of, and quantifies the assumptions behind, policy intervention.
CEDA wants a market created to incentivise energy efficiency as part of a plan to reduce emissions.
The committee also calls for the deregulation of retail electricity prices and introduction of time-of-use tariffs, calling for the framework for smart meters to be amended to allow competition in metering services.
While the first stage of the reform agenda that created the “national energy market” on the east coast produced stable prices for a decade before the steep rises from 2007, steps now need to be taken to usher in a new phase of stability or even declining prices, CEDA argues.
It points out that, with the exception of three single-year periods, electricity prices between 1985 and 2007 declined in real terms as general inflation was greater than the power price index.
In a commentary written by its chief economist Nathan Taylor with two AGL Energy executives, Paul Simshauser and Tim Nelson, the committee calls for steps to address peak demand growth, to target better hardship payments for households, to “engage and empower” consumers and to establish a robust market in a greenhouse gas-constrained environment.
The trio point out that “NEM” peak demand has grown by 18 per cent since 2004 while underlying energy consumption has increased by only nine per cent.
It is telling, they say, that the energy industry’s annual “statement of opportunities” explicitly stops at the meter box – “yet the greatest opportunities in reforming the sector will come from engaging and empowering consumers.”
Since 2007 there has been a significant run-up in electricity prices while underlying inflation has been relatively modest – and it would be “simple but incorrect” to assume that energy affordability is an issue for all households, Nathan Taylor, Paul Simshauser and Tim Nelson argue in their CEDA review paper.
For the majority of society, they say, even a doubling of energy costs is little more than a household budgeting inconvenience.
“While real prices are now at their highest levels in decades, income growth and relatively flat average household consumption have acted to reduce the impact on consumers as a proportion of total energy bills relative to disposable income.”
The trio point out that energy bills today are no more significant than they were in 2003-04 – they are still around 2.6 per cent of average Australian household budgets.
However, they say the data masks the problem prices present for households with dependent children where the account holder is aged 30 to 55 and there is a substantial need for space heating and cooling plus a proliferation of “energy-zapping appliances” and information technology devices.
There is a “disturbing” problem that, at a stage of life when income per person in these households in lowest, spending on energy is highest.
Taylor and the AGL economists argue that policymakers must focus on a key question as to how well electricity-related transfer payments and concessions are targeted on the demographic most at risk of hardship.
This is a “yawning gap” in the present approach, they say – paying concessions, as a lump sum regardless of consumption is poor policy, they say.
They call for an urgent review of the electricity concessions framework to determine whether the Victorian model (where concessions vary according to consumption) should be adopted everywhere to address hardship.
Energy Supply Association CEO Matthew Warren says that “generally, young families are not in genuine hardship, or anything near it, but many are doing it tough” in the present cost of living environment.
The association proposes three steps to bring their power bills down.
The most important, says Warren, is to complete the deregulation of energy markets, a process begun in the 1990s, creating more choice for consumers.
The second step is for State governments to refine the concessions, rebates and feed-in tariffs to ease the burden on other consumers who pay for them.
“Put simply,” says Warren, “if you’re not getting a subsidy, you’re paying for it.”
The third step, Warren says, is to give consumers a national consumer advocate inside the regulatory system for power networks.
“Giving average Australians a say must be the primary focus of any new consumer voice – that doesn’t mean a host of self-appointed experts and special interest groups.”
Climate science professor Barry Brook of the University of Adelaide says that, as an overview of the current status quo on domestic and export energy, the energy white paper is a “fine document,” but, as a forward-looking, agenda-setting stimulus paper, it has weaknesses.
An advocate of the use of nuclear energy, Brook argues that nuclear plus renewables equals cost-effective decarbonisation by mid-century. “Excluding nuclear,” he says, “means higher greenhouse-gas emissions, higher cost, and more fossil fuels with CCS.”
The O’Farrell government will not support a mandatory roll-out of smart meters in New South Wales.
Releasing a discussion paper on the issue, NSW Energy Minister Chris Hartcher said the government’s task force recommended a “market-led” introduction of the technology.
“Energy business should have flexibility to offer innovative products that customers want, not ones the government has forced on them.” He acknowledges that there is distrust in the community about the technology.
The Energy Supply Association applauded the paper’s view that a “do nothing” strategy is not viable.
ESAA chief executive Matthew Warren welcomed the recommendation that the State government undertake community education to encourage consumers to take more control over when and how they use energy.
The Energy Networks Association has chided the Australian Energy Market Operator for “a headline-grabbing claim” about potential savings from deferred invests in the sector.
ENA chief executive Malcolm Roberts says that, while the new AEMO economic planning study makes an uncontroversial point about the need to align investment with customer expectations of price and reliability, the operator’s claim that $250 million could be saved if there was no investment in expanding capacity in 2012-13 “is not a realistic proposition.”
Writing in the Western Power annual report, chief executive Paul Italiano says managing the fair allocation of charges across networks in an environment of increasing power self-generation is a looming challenge for suppliers.
Italiano points out that Australia led the OECD in 2011 in the number of customers choosing to install self-generation, such as rooftop solar PV systems.
“The vast majority of these customers remain connected to the grid but pay a decreasing share of the costs associated with maintaining the network,” he says. “Over time this is shifting the financial burden of network charges to those who have not or cannot install self-generation systems.”
China has made its entry in to Australia’s electricity supply sector with a $500 million purchase of 41 per cent of ElectraNet from the Queensland government-owned Powerlink.
The buyer is State Grid, the world’s largest utility, which is predicted to increase its overall assets from $US8 billion at present to as much as $US50 billion by the end of the decade. State Grid has already bought network assets in Portugal, Venezuela, Brazil and the Philippines.
Once the deal is finalised, the majority of shares in ElectraNet, South Australia’s transmission business, will be owned by overseas investors, with YTL Power of Malaysia already a stakeholder. (The other owners are Hastings Fund Management and Macquarie Special Assets Management.)
Announcing the deal, State Grid stressed the expertise it will be bringing to Australia, including reducing losses for long distance transport of power, integration of wind farms to grids and smart grid technologies.
The company has often been mentioned by analysts as a potential buyer of networks assets in NSW and Queensland should the State governments decide to privatise them.
Meanwhile the Australian Energy Regulator’s draft decision on ElectraNet’s revenue proposals for 2013 to 2018 has slashed $218 million from the network’s bid. This includes a 28 per cent cut in allowable capital outlays to $642 million.
AER says it proposes to cut the capex requirement because it foresees lower peak power demand in South Australia.
The determination will be finalised next April.
NSW Treasurer Mike Baird says the State government’s privatisation of its remaining generation assets, including Macquarie Generation (which accounts for 28 per cent of State power supply), has begun and will continue through next year and in to 2014.
The former State Labor government sold Eraring Energy’s output and part of Delta Electricity production in late 2010 in a much-criticised process.
Federal Energy Minister Martin Ferguson says the O’Farrell ministers have to be “kicking themselves” for not supporting Premier Morris Iemma in his attempts to sell the generators in 2008 because the prices likely to be received now will be much lower.
The sales are taking place in a market environment where east coast consumption has declined since 2008 and especially in NSW.
Media commentators have speculated that the State government can expect to receive about $3 billion for the assets now on sale, although some analysts believe they could garner up to $5 billion. The sales do not include Snowy Hydro, in which NSW holds a majority share.
Negotiations are expected to take place between the O’Farrell government and EnergyAustralia (aka TRUenergy) and Origin Energy for purchase of the power plants whose production they already own.
Baird says he expects interest in the new round of sales from Australian and overseas interests.
EnergyAustralia has bought the output of the 2,043 MW Mt Piper plant until 2043 and of Wallerawang (1,000 MW) until 2029.
Origin Energy owns the output from Eraring (2,880 MW) until 2032.
In all, the sales will involve 11,200 MW of capacity, most of it coal-fired but including the 667 MW open cycle gas plant at Colongra owned by Delta Electricity.
A looming “gas price bubble” is a threat to Australian industries relying on the fuel as a major input, according to the Australian Pipeline Industry Association using research for it by ACIL Tasman.
APIA and ACIL say the demands to feed east coast LNG exports and a potential slowdown in coal seam methane development could create a seven-year period of high prices. Current delays in accessing gas in Queensland and NSW mean that LNG companies will need to draw on resources it had been anticipated would be available to domestic users.
APIA chief executive Cheryl Cartwright says that it is “at best misguided” of the federal government to claim that market developments such as the gas bulletin board and short-term trading plus a proposed gas supply hub at Wallumbilla in Queensland can assist in providing affordable fuel.
“While they increase information availability and demand flexibility, such initiatives will not provide more gas, nor will they reduce prices,” she argues.
“Right now the answer is not to tinker with end markets or transportation, but to address gas supply.”
APIA welcomes the idea that improved access to gas resources will help deal with the problem.
“But,” says Cartwright, “in the meantime, government should seriously consider whether it wants a short-term gas supply crisis to permanently damage some sectors of the economy.”
Andrew Liveris, global CEO of Dow Chemical Company, in an interview on ABC TV’s “Inside Business” program, says it is time “Australia got its act together” on creating value-adding domestic businesses to take advantage of this country’s large gas resources.
He says it is “nonsense” to describe ensuring job creation and diversification through use of gas as protectionism.
David Byers, chief executive of the Australian Petroleum Production & Exploration Association, retorts that the LNG market is not one in which this country can participate at its convenience.
“Failure to maintain our present LNG development momentum opens the gate to rival projects around the world. And project opportunities, once lost, cannot be revived next year or even next decade.”
Byers adds: “It is not as if we don't have a prior lesson on the price to be paid for interference in the gas market.
“The South Australian government in the 1970s and 1980s intervened to reserve ethane for a much-hyped petrochemical plant, while the Victorian government prohibited export of gas from offshore Gippsland Basin to other States.
“Consumers in these States and beyond their boundaries are suffering from these poorly thought through decisions many years later.
“The distortions created by such well-intentioned populist actions have ricocheted through the economy for at least two decades. It seemed a good idea at the time is the worst possible basis for policymaking.”
Martin Ferguson says the performance of the coal seam methane industry on the east coast has been “markedly impressive” to date and it now accounts for 35 per cent of the region’s gas production. Output in 2010-11 totalled 6.2 billion cubic metres.
However, he warns that there are a number of challenges to be overcome by the industry, including maintaining a social licence to operate in the face of community concerns about the impact of its activities and their affect on water resources and agricultural production.
He says the federal government believes in allowing the market to deal with supply issues rather than “short-sighted” constraint of sales or of prices.
When all is said and done about the 2012 debate over power prices, no-one I think has summed the situation up better than the Grattan Institute in its year-end commentary about network regulation.
Power price increases, the institute observes, have generated concerns from all classes of consumers, all levels of government, various agencies and the supply industry itself. Reviews have concluded that, while many costs have risen to meet real needs, significant flaws in the regulatory processes have led to unjustified cost increases.
“It is unfortunate but not unexpected,” it adds, “that some of the public commentary about these reviews has resorted to blaming and point scoring.”
As the institute says, economic regulation of monopoly distribution networks is complex and often politically sensitive. “The regulator seeks to achieve a balance between the interests of investors and those of consumers. It is now a widely accepted conclusion that the balance has shifted towards the former and there needs to be a correction.”
What will not achieve this correction is political spin.
In the week before the CoAG first ministers meeting, we were treated to a media orgy over the Prime Minister’s “plan to save consumers $250 a year on power bills.”
Shorn of rhetoric, of which Julia Gillard is over-fond, the “package” embraces the introduction of smart meters and time-of-use charges and the introduction of a national standard for network reliability.
These are not “her plan” but the concepts put forward through the CoAG energy ministers committee by the Australian Energy Market Commission after 18 months of reviews and wide consultation and they can’t be implemented without the agreement of individual State governments
The key element not addressed in the Prime Minister’s lunge for headlines through a tabloid newspaper as the opening gambit in a new media assault on voters is the time frame for implementing such changes.
She succeeded in creating the impression that this is immediate, but it isn’t and can’t be. (By the time the COAG meeting had ended she was inserting weasel words in the timing claim but no casual reader of a newspaper would spot them.)
How long will it take, for example, to roll out smart meters in New South Wales, to implement deregulation of energy retailing and to review and legislate safeguards and concessions for vulnerable customers?
Will Queensland and South Australia, with both governments reacting less than favourably to the smart meters proposal, even agree to a roll-out?
On 7 August the Prime Minister threatened to use a “big stick” at the CoAG meeting to achieve change.
How exactly can she wield said stick to drive the centrepiece of her $250 claim – the meters roll-out?
The even bigger unknown is the impact of metering and flexible charges on customer behaviour. Will it succeed in curbing surging peak demand? Over what time?
If east coast peaks continue to build – and a succession of mild summers has muddied analysts’ crystal balls – then network expansion will need to continue and, however ameliorated by changes in regulatory rules, consumer costs will continue to rise.
The cost of the meters, of course, will need to be added to bills as well.
More care in the Prime Minister’s office in reading the Productivity Commission report on which she based her Sunday spin would have revealed two things.
First, the household gains are estimated by the commission to save $100 or $250 a year – naturally she chose the top number for rhetorical benefit.
Second, the commission has many cautionary words about the need for care in implementing the roll-out and associated tariffs, warning that under some circumstances the process could deliver net costs.
Its judgement about the poor implementation of the Victorian roll-out, the sole local example to date, by the State Labor government, defeated in 2010, is cutting. “It appears,” the commission says, “that the Victorian decision was premature and/or poorly planned, with inadequate knowledge about the technologies, their costs and associated risks.”
In political jargon, the Victorian outcome – consumers are paying for the meter installation but have no means of pursuing the benefits – is called an “unintended consequence” and the landscape of electricity reform over the past 10-15 years is littered with examples of the breed because governments can’t resist playing politics with an essential service.
In this respect, nothing changed in 2012 – and 2013 is an election year.
7 December 2012
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