Issue 90, October 2012


Welcome to the 10th issue of this newsletter for 2012, writes Keith Orchison, as the Senate select committee on power prices gears up to deliver a report by 1 November, the Climate Change Authority mulls 168 submissions it has received on the renewable energy target, and federal and State energy ministers prepare to make decisions next month on power regulation. The wide variety of issues confronting electricity suppliers will also be under consideration on 17-18 October at the “Eastern Australia Energy Markets 2012-2025” conference in Sydney.

Gas price warning

Consultants AECOM have told the Climate Change Authority – in a submission supporting the present levels of the renewable energy target – that Australia faces a threat to electricity price security because of domestic gas costs being linked to international markets.

AECOM argue that Australian electricity prices could become exposed to the possibility of “sudden, unexpected high international prices over which we have little short term ability to mitigate.”

The consultants say that the development of a more diverse generation portfolio through support the existing RET can help address the threat.

Cheaper? No

Holding a public hearing in Brisbane, the Senate select committee on power prices asked distributors Ergon Energy and Energex if electricity bills in Queensland will be cheaper in the future?

The Energex answer: “They will not be cheaper, but they will not go up as fast.”

White paper

Federal Resources & Energy Minister Martin Ferguson says the final version of the energy white paper should be released in October.

“Of course,” he told a Sydney/China business forum on 25 September, “it will not be the end of the road. Policy development is not a set and forget exercise. It requires continuous improvement.”

Ferguson says the final paper will “outline a strategic policy framework through market-based solutions to ensure secure, reliable, clean and competitively-priced energy supply” while building national wealth through safe exploitation of resources.

Ferguson will also launch the 2012 edition of “Powering Australia” yearbook at Old Parliament House, Canberra, on 11 October, the fifth year in a row he has done so.

Meanwhile, in an interview with Fairfax newspapers’ Lenore Taylor, he has rejected the view that State governments are responsible for big increases in power prices and has rejected a proposal by independent MP Rob Oakeshott for a federal takeover of electricity price regulation, calling the suggestion an attempt to obtain a “cheap front page headline.”

Ferguson said the States were working co-operatively with the federal government on reforming electricity regulation.

Cut the tie

The debate over regulation of networks has taken a new twist with NSW, Victoria and Queensland seeking to split the Australian Energy Regulator from the Australian Competition & Consumer Commission.

The CoAG committee of energy ministers held a special meeting in Sydney on 5 October to discuss market reform following first ministers calling on them to “focus current reviews on achieving efficient future investment that does not result in undue price pressures on consumers and business.”

The committee notes “strong support from a number of ministers for structural separation of the AER from the ACCC.”

Queensland Energy Minister Mark McArdle has told journalists that independence for a “fully-resourced” AER is essential.

Energy Supply Association chief executive Matthew Warren says the sector is concerned that the current structure and resourcing of the AER is not delivering good outcomes for industry or consumers and would welcome reform.

CoAG meets again mid mid-December with electricity issues expected to be high on its agenda.

NSW transmission operator TransGrid has proposed a model to fast-track major changes to the National Energy Rules to enable, it says, more downward pressure to be placed on electricity prices.

It says the approach has been endorsed by Tasmania’s Transend and comes from consultation with other network businesses.

In essence, TransGrid says, the approach will enable major changes to the NER to be applied as soon as possible.

CEO Peter McIntyre, who is a keynote speaker at the “Eastern Australia’s Energy Markets 2012-25” conference on 17-18 October, says the model will avoid unnecessary administrative costs and deliver pricing certainty for both customers and networks.

Meanwhile a proposal is being pursued to upgrade the South Australian-Victorian Heywood electricity network interconnector to optimise the transfer of power between the two States. It is aimed at increasing interconnector capability by about 40 per cent in both directions.

This would enable increased wind energy exports from South Australia and also increase imports of lower cost generation into South Australia, particularly at times of peak demand.

If approved, the upgrade, according to the Australian Energy Market Operator, will deliver net market benefits of more than $190 million over the life of the project.

Price of reliability

The Energy Networks Association says in its submission to the Senate select committee on power prices that the 2005 move to increase electricity reliability standards in New South Wales has required an extra $2.75 billion in capital expenditure.

The association says that government policy should focus on the real causes of higher network costs “rather than crudely imposing more regulation.”

It has called for the public debate to shift from “a search for scapegoats to overdue, genuine policy reform.”

ENA says the reform agenda has been “stalled for many years” and it accuses governments of baulking at introducing the retail price reforms essential for curbing the growth of peak demand.

“The roll-out of smart meters, so important to empowering customers, has stopped at the Victorian border,” the association adds. “The regulatory system does not provide the commercial incentives necessary to accelerate demand-side participation.”

How low?

One of Australia’s largest integrated energy businesses, Origin Energy, claims that total annual national power demand in 2020 will be 245,000 gigawatt hours and says this is a conservative estimate. “We believe demand could actually be lower.”

The projection is in line with the current load forecast from the Energy Supply Association, which says in its 2012 yearbook that system energy in 2020-21 – this is electricity sent out by power stations and excludes line losses – will be just over 275,000 GWh.

Slow ahead

Gillard government adviser Ross Garnaut says the combined effects of the renewable energy target and slow power demand growth can be expected to reduce carbon emissions from the electricity sector “at a substantial rate” between now and 2020.

In a submission to the Climate Change Authority review of the RET, Garnaut also says that the government’s revision of its carbon policy, now linking the carbon price to the European Union trading system from 2015, is likely to see the local price “settle at around five per cent below the level of the EU trading system” because of more generous allowance of credits from the UN clean development mechanism.

Garnaut acknowledges that it is “particularly difficult” for one country to pursue the ideal of economically efficient abatement while the rest of the world is a long way from doing so.

With uncertainty about the future of carbon pricing in Australia, he argues, the RET will need to play a more central role in electricity emissions reductions.

He urges the CCA to confirm the current legislated quantitative target – 41,000 GWh in 2020, a step opposed by Origin Energy and TRUenergy but supported by AGL Energy – and to announce limitations on the circumstances under which it would recommend change in the future.

Garnaut adds that, even if proposed energy policy and regulation changes are effected, the power bill rises of recent years will continue to have a dampening effect on demand “for a number of years.”

Efficient, not low

Alinta Energy has told the Senate power price committee that the real task for policymakers and regulators is to achieve efficient pricing in the electricity market – “which does not necessarily translate in to the lowest price.”

The company defines an efficient price as one that allows retailers to recover their reasonable costs while facilitating market competition.

Energy efficiency and environmental programs add costs that must be passed on, Alinta says, urging that new policies should be subjected to thorough cost/benefit analysis before introduction.

It calls for price regulation to be replaced with price monitoring, arguing that government should intervene only where the market fails to deliver on policy initiatives.

Alinta tells senators that recent increases in electricity retail prices have been largely driven by network costs and “green costs,” which together account for about 55 per cent of an average bill. Retail operating costs and wholesale prices have remained largely constant in real terms, it says.

Cost of exporting

The manufacturing sector continues to campaign for reservation of gas supplies for domestic use, despite it being ruled out by the Prime Minister, warning that the US is offering supplies at $US3 and less per gigajoule compared with forward contract prices on the east coast of Australia of $10 per GJ as a result of LNG export developments.

The DomGas Alliance claims that higher gas prices will add more than $3 billion a year to the cost of buying the fuel in the four mainland east coast manufacturing States.

Incitec Pivot managing director James Fazzino says his company is investigating building a “world-scale” ammonia plant in Louisiana but not here.

“We will not be the only Australian company to take the unfortunate but necessary decision to invest overseas,” he warns. “The lack of gas will destroy Australia’s fertiliser manufacturing industry.”

The Australian Petroleum Production & Exploration Association argues back that demands for a gas reservation policy are “little more than protectionism dressed up as industry development.”

The gas debate

Whether the east coast will have affordable gas available between 2012 and 2025 is a keynote topic for the “Eastern Australia’s Energy Markets: managing rising uncertainty” conference in Sydney on 17-18 October.

ACIL Tasman executive director Paul Balfe will project gas supply and demand out to 2025, asking “Is coal seam gas running on empty?”

Australian Aluminium Council executive director Miles Prosser will speak on the need to balance the interests of gas producers and manufacturer – and Dick Warburton, executive chairman of Manufacturing Australia, will address the need for “a positive policy response.”

Rob Wheals, group executive transmission of APA Group, will speak on the changing face of east coast gas transportation.

Prosser, Balfe, Edwin O’Young of Port Jackson Partners and James Rintel, chief strategy officer of Incitec Pivot, will participate in a panel discussion on the rising cost of gas for domestic use.

Ian Macfarlane, the Coalition spokesman on energy, will also include the impact LNG exports will have on east coast gas prices in his address.

Leave RET alone

Snowy Hydro, which is in the middle of a $400 million modernisation of its hydro-electric system, has “strongly advocated” that the RET be left unchanged. Any alteration, it says, would present sovereign risk for these and future hydro investment plans.

The company, which is owned by three governments, also argues that any RET changes to promote specific technologies will undermine investment confidence and increase compliance costs.

Cut RET back

Origin Energy says it is concerned that the RET is becoming something it was not intended to be.

In its submission to the Climate Change Authority, Origin says the RET was originally intended to target 20 per cent of demand and to support multiple technologies to strategically position Australia with a portfolio of options for a long-term transition to a low-carbon carbon economy.

In practice, it argues, the large-scale RET has “turned in to a subsidy for one relatively mature technology,” wind power.

As presently arranged, it adds, the RET will result in investment in 9,000 MW of wind generation by the end of the decade. “There will be very little in the way of learning from this investment and it will be challenging in an energy market with flattening demand and when retail customers are facing significant costs increases.”

Origin says that constraining the RET to 20 per cent of consumption rather than holding it at 41,000 GWh a year will save $25 billion between now and 2030.  It adds that, as things stand now, the RET’s carbon abatement cost is more than $50 per tonne.

Different path

NSW government-owned Eraring Energy says there is a third way to address the issue of the RET overshooting the policy target of 20 per cent. 

The company argues that the target should be left unchanged but that existing “baseline generation” – long-standing hydro-electric production – should be included in the scheme.

It says this move will reduce the cost of reaching the 20 per cent target and put downward pressure on the end-user prices.

Aluminium burden

The aluminium industry, which uses about 13 per cent of all the electricity sold in Australia and says it is currently loss making as a result of the high dollar and low international product prices, has told the Senate power prices inquiry that it will be forced to continue actions to reduce employment and to forego investment in order to manage the loss of competitiveness resulting from the present trend in energy costs.

“It should not be assumed that the current aluminium smelting capacity in Australia will be sustained,” says the Australian Aluminium Council.

Meanwhile the association, in its submission to the Climate Change Authority review of the RET, has said that, even with government exemptions for energy-intensive industry, the measure is costing its members about $80 million a year or $40 per tonne of aluminium at a time when “the viability of most facilities is under question and requiring severe cost reductions strategies to survive.”

The association has called on the review to “seriously consider” ending or reducing the “wealth transfer” from the aluminium industry to the renewable energy generation sector.

If this doesn’t happen, it says, there is “significant risk” that there will be “more closures of aluminium smelting capacity with associated negative impact on jobs, communities and exports.”

AAC executive director Miles Prosser is a keynote speaker on 17 October at the “Eastern Australia’s energy markets 2012-25” conference in Sydney.

Open and transparent

The Queensland government says it sees the cost of energy supply as a national priority issue for major reform and wants it discussed “in an open, transparent and honest way.”

In a submission to the Senate select committee on electricity prices – set up after Prime Minister Julia Gillard attacked network charges and the role of the State governments north of the Murray in a speech in early August – the Queensland Minister for Energy & Water Supply, Mark McArdle, points out that the exercise will duplicate much of the work of energy ministers ahead of the December Council of Australian Governments’ meeting.

The Senate committee is required to report by 1 November and the CoAG energy ministers’ meeting has been brought forward to November to enable it to report to the December first ministers’ meeting.

McArdle says that “for the past two decades there has been an increasingly pervasive political influence that has made it more difficult for (Queensland) governments to make decisions about how to secure the most affordable future electricity supply.”

He accuses Labor of “14 years of mismanagement of electricity transmission and distribution networks.”

He asserts that the Beattie government “panicked” and as a result the debts of Energex, Ergon and Powerlink, the three State-owned network businesses doubled in five years to 2010-11 to $12.6 billion, with interest on the borrowings increasing from $327 million to $807 million in the same period and household prices rising 83 per cent from 2007-08 to 2012-13.

He claims that the debt servicing costs are adding between $350 and $400 a year to household power bills.

McArdle says the Newman government will not sell any State-owned assets without a mandate from voters.

Chasing better deals

New South Wales Energy Minister Chris Hartcher says nearly half of the State’s households have moved away from standard regulated electricity rates to shop around for better deals.

Hartcher says the O’Farrell government will introduce changes to how energy prices are regulated from July next year to place downward pressure on residential bills.

He claims that the “locked-in” terms of references provided to the Independent Pricing & Regulatory Tribunal by the State’s long-running Labor government have set the regulated prices too high – and asserts that this year’s prices would have been “about two per cent” lower if IPART’s new terms of reference had been in place.

IPART’s 2012-13 determination of the prices regulated retailers can charge NSW households and businesses consuming less than 160 megawatt hours a year increased bills by between 11.8 per cent (Integral Energy franchise) and 20.6 per cent (Energy Australia franchise), averaging 18 per cent for the State.

Meanwhile 55,000 households have been invited to take part in a NSW trial aimed at giving consumers greater control over their energy use.

The trial is part of the $100 million federal “Smart Grid, Smart City” experiment testing how households react to technology and price inducements aimed in particular at cutting peak demand.

Way with words

The manner in which power cost changes are presented to consumers in the media has been again illustrated by a report in “The Age” newspaper in Melbourne of the impact of an Australian Competition Tribunal ruling against the national networks regulator.

“Bills to climb $255 million,” headlined the newspaper. The story then reveals that the average residential customer in Victoria will experience an increase in network charges of $19 in 2013 – which is 36 cents a week – and that the headline amount is an Australian Energy Regulator estimate of aggregate cost over three years to 2015.

There are 2.3 million residential customers in Victoria.

The change is the result of the Competition Tribunal ruling that the AER had under-estimated the costs of the State’s five distribution businesses when setting charges in 2010.

The newspaper reports that the largest impact of the change will be on Jemena customers, amounting to $100 over three years – which is 64 cents a week.

Meanwhile the State’s Essential Services Commission has reported that retail electricity prices rose by 10 per cent in 2011-12 for householders on default contracts and by 12 per cent for customers on market offers.

In the past five years, the ESC added, residential standing offer prices (excluding inflation) increased on average 33 per cent.

The report found that average household bills ranged from $883 to $1,245 for single-rate tariff customers and from $1,123 to $1,602 for two-rate (peak and off-peak) customers.

The comparisons are based on 4 megawatt hours a year consumption by single-rate users and 6.5 MWh by two-rate consumers.

The ESC said residential customers who shopped for a competitive offer from retailers could save an average $114 a year by switching from a standing offer contract to a fully-discounted market offer.

It said about a third of Victorians are still on a standing offer contract.

The commission also reported that householders’ gas prices had risen 22 per cent over five years to 2011-12.

Doing okay

Victoria’s investor-owned distribution businesses have told the Senate inquiry that their sector has “performed well” since the major reforms of the mid-1990s, with network charges reducing over time and reliability improving.

The group says network charges in Victoria are about 32 per cent of the final consumer bill, including metering costs, compared with a national average of 51 per cent.

The DBs say that network charges decreased in the State in real terms between 1995 and 2010 – delivering a four per cent real reduction in retail bills.

They add that the key drivers for network cost increases approved by the Australian Energy Regulator for 2011-15 are “mostly external to our businesses” and include network augmentation following significant peak demand growth, an increase in the cost of capital reflecting the impact of the global financial crisis, enhanced environmental, safety and other statutory obligations, increased materials and construction costs, higher labour rates and operating cost increases from enhanced bushfire mitigation regulations.

Smart meter progress
The vanguard mandatory smart meter roll-out in Victoria has moved beyond the half-way mark and should be completed at the end of next year, according to the State’s distribution businesses.

They say 1.5 million of Victoria’s 2.6 million households now have the new meters and report that the roll-out has detected 13,000 wiring defects in homes.

The companies say they support the Baillieu government’s view that the introduction of flexible pricing must be “undertaken in an orderly way” and supported by clear explanations of pricing structures and their impacts. At present, they add, consumer understanding of smart meters and the opportunities they create is limited.

BlueGen boost

The Victorian government has changed the electricity feed-in tariffs it inherited from the previous Labor regime to allow the inclusion of Ceramic Fuel Cells’ gas-fuelled BlueGen micro-generator.

The Baillieu government has put the CFCL fuel cells on equal footing with solar PV systems, a first for Australia – but the company says its main focus will continue to be Germany and Britain, where feed-in tariff arrangements are more generous.

Meanwhile, CFCL has announced that 25 of its BlueGen units are being used to power Germany’s first commercial virtual fuel cell power plant in Westphalia, the second development of this kind in Europe – the first is in the Netherlands.
A virtual power plant is a cluster of distributed electricity generation units, controlled and operated by a central entity using integrated software systems. It allows power generation to be modulated up or down to meet peak loads and balance intermittent power from wind or solar, with higher efficiency and more flexibility than large centralised power stations.

Pushing efficiency

Consumer group Choice has told the Senator power price inquiry that a national energy savings initiative could be saving households up to $296 a year by 2020 and lead to the deferral of up to $12 billion in generation and transmission investment by 2040.

The estimates come from the Prime Minister’s task group on energy efficiency.

Choice says current regulatory settings do not prioritise opportunities for cost-effective energy savings and reductions in peak electricity demand.

The consumer group reports it surveyed 1,000 households on electricity prices and found 44 per cent of them believe that the federal carbon price will be the main reason their bills rise in the next few years. Twenty-seven per cent believe the cause is energy companies seeking to increase profits.

Fifty-five per cent of those interviewed were “very concerned” about electricity prices.

NSW renewables mystery

Where exactly is Australia’s largest electricity sub-region heading on renewable energy over the course of this decade?

The question arises because of mixed signals emerging from the O’Farrell government in NSW.

Early in September, the State’s Energy Minister, Chris Hartcher, released the government’s 2020 renewable energy “action plan” in which it was asserted that the federal RET would stimulate more than $30 billion in investment, mostly on wind farms, and that NSW would capture a sufficiently large share of development to create 6,000 jobs.

In speaking to media about the plan, Hartcher claimed that the State target could be achieved without extra cost to consumers or taxpayers, an idea that most observers dismiss out of hand.  The published plan actually states that it will “seek to increase the use of energy from renewable sources at least cost to customers.”

However, in early October a report in “The Weekend Australian” newspaper revealed that Premier Barry O’Farrell has written to the Prime Minister criticising the RET and its requirement, to achieve the national target, of building 5,000 wind turbines across Australia, many of which would have to be constructed in NSW to achieve the earlier-announced State goal.

The letter reportedly asserts: “While the NSW government has been acting to place downward pressure on electricity prices, our actions are being overwhelmed by federal policies and green schemes which add to the cost of household bills.”

The State’s Independent Pricing & Regulatory Authority, as well, has told the Climate Change Authority, which is reviewing the RET for the federal government, that the introduction of a carbon price and the move towards emissions trading makes the scheme redundant. 

IPART says that the cost of compliance with the RET adds $102 on average to regulated household bills in NSW in 2012-13 – substantially more than was estimated when the measure was being legislated in 2009 and 2010.

The NSW Greens have attacked the plan announced by Hartcher as a “dud” and the promised 6,000 jobs as a “fantasy.” The NSW ALP says the plan is “laughable.”

The O’Farrell government’s approach also includes an intent to boost end-use efficiency in NSW in order to “see an estimated $2.8 billion in electricity costs avoided in 2020 and annual savings of 16,000 gigawatt hours realised by 2020.”

The government reports that in 2011 some 10.2 per cent of electricity generated in NSW was from renewable sources – of this just 652 GWh was wind power and 3,690 GWh was from hydro-electric sources, mainly Snowy Hydro, with 684 GWh provided by solar power and 344 GWh by landfill gas generation.

The renewables plan points to 1,000 MW of small-scale hydro-electric capacity being available from “several dozen sites” in the State and claims that 2,260 GWh annually will be generated by solar energy in NSW and the ACT by 2020.

The plan says that investors have development consent to build 2,000 MW of wind generation and have a further 6,700 MW of wind capacity under assessment.

It assumes that about 8,000 GWh a year can be produced from wind generation by the decade’s end.

It adds that up to $2.3 billion could be spent this year and in 2013 on NSW wind development.

The “Sydney Morning Herald,” reporting release of the plan, notes that the government has made no firm decisions on streamlining wind farm planning and that strict guidelines to keep wind turbines distant from rural properties are still in place.

Promoting consumer choice

The Australian Energy Market Commission will put a plan on how to help consumers control their use of electricity and manage their bills to the committee of State, federal and Territory ministers when they meet again on 16 November.

Releasing a draft of its “Power of Choice” report, the AEMC chairman, John Pierce, said the review proposes to “change every part of the electricity supply chain.”

This would create greater demand-side participation in the east coast market, he said, and also encourage network operators, retailers and others to better support consumer choice and to use flexible demand to delay investment in generation and power delivery systems.

Pierce added that, while demand-side participation offers “considerable benefits,” there are likely to be costs involved for consumers and others.

In the draft report, the AEMC says the east coast market has “reached an important turning point and needs flexibility tor strike the right balance between affordable and reliable energy supplies.”

It adds: “We see increasing take-up of electronic devices in homes and businesses, peak demand growth, new government policies and changing economic conditions which all create a new market environment where new opportunities for demand-side participation can be encouraged.”

It notes also: “The strong economy Australia enjoyed from the mid-1990s through the middle of this decade resulted in a very significant increase in the percentage of homes using air-conditioning and in the size of new homes being built.

“The combination of these factors significantly increased the amount of electricity generation and network capacity needed to meet customer demand, particularly during extended periods of hot weather.”

The report says that, in addition, changes to business systems have made even momentary supply faults more apparent and more inconvenient and costly – in response, some governments have tightened network reliability standards and this has resulted in the need for additional capital investment on top of the major asset replacement programs required where networks have equipment installed in the 1950s and 1960s.

No show

Three electricity supply businesses owned by the West Australian government turned down invitations to appear before the Senate power prices inquiry.

The committee chairman, Senator Mark Thistlethwaite, says Verve (generator), Western Power (networks operator) and Synergy (retailer) were invited to attend a hearing in Perth but declined to do so.

The Barnett government and the State regulator participated in the hearing.

Last word

Most of us learn in the schoolyard not to start fights we can’t finish, but, on the evidence of recent behaviour, it is a lesson lost on the Prime Minister.

The whole point of Julia Gillard’s intervention in the power price debate in early August was to signal to irate voters that she could, and would, deal with what is believed to be their most annoying cost-of-living problem.

The Prime Minister took to the media with vim thereafter, reinforcing this impression in as many ways as she could – then, with the support of the Greens, she launched a Senate select committee inquiry in to power prices with a very short timeline. It is required to report by 1 November.

A key part of the Prime Minister’s approach has been to seek to lay the blame for power price rises at the feet of two new Coalition governments (in NSW and Queensland), portraying the O’Farrell administration in particular as grasping income at the expense of “working families.”

As well, she has sought to portray herself as a sort of Jeanne d’Arc, hassling these vacillating leaders in to action on electricity market reform, insisting she has a “big stick” to use against them if they don’t comply.

This could not fail to infuriate them because only two weeks before her outburst, apparently at the behest of Campbell Newman, the Council of Australian Governments had agreed to send energy ministers a message that first ministers wanted faster action.

The annoyed premiers’ response has shown up in early October in a move by Coalition governments, via energy ministers, to have the Australian Energy Regulator pulled from the ACCC nest and given independent status and better resources.

All of this, however, is quite lost on the household consumers and voters – they just want relief from the pain in their hip pockets.

Inherent in the Prime Minister’s posture is that she can deliver this and soon, thereby mitigating widespread annoyance with her over the carbon price.

The problem here is that no-one, including Julia Gillard, can actually deliver on this promise without opening the gate to further hazards.

As Hydro Tasmania put it in a submission to the Senate committee: government interventions that seek to suppress the efficient pass-through of costs will have negative impacts on investment and consequently on supply outcomes.

The prices cat was well and truly belled when the Senate select committee held a public hearing in Brisbane in early October.

Distribution executives were finally asked the question that should have been put to all witnesses from the get-go: Are power prices going to be cheaper in the future?

No, came the reply, but they will not go up as fast.

If the government senators on the committee, and the Greens leader, Christine Milne, have ears to hear, this is simply the clearest version of a message they have been given by a number of submissions and witnesses.

I have canvassed this point in a This is Power post on the Coolibah website in some detail (see “Scapegoat search won’t do,” 6 October), but three supporting views are worth including here:

First, the NSW Energy & Water Ombudsman: network security and supply without interruption are valued highly by consumers and any over-reaction in response to alleged “gold-plating” may result in a future price shock if there is under-spending on the capex needed to ensure energy security. And also: alternative technologies are not necessarily cheaper in the short to medium term – smart meter technology will come at a significant cost to consumers.

Second, Unions NSW, employer in years gone by of the committee chairman, Senator Mark Thistlethwaite: having, awkwardly for the Prime Minister, pointed out that the dividends accrued by the NSW government are a State Labor initiative not some cruel cash grab from “working families” by Barry O’Farrell, this body reminded senators that increased reliability is an important factor for consumers and their losses will far exceed their short-term gains if changes lead to extended failure of supply.

And, third, the Energy Supply Association, making the crucial point that a great deal of east coast generation and networks was built in the 1960s and 1970s and is coming to the end of its useful life. 

The media, and especially the electronic, pro-environmental movement newsletters, are full of comment about the fact that we are in a period of declining power consumption.

This may well mean that the urgency to expand supply has eased (but not vanished, as witness new suburbs continuing to be built outside our major cities), but it does not mean that the urgency of refurbishing the age-stressed system to sustain security of supply has done so.

The peak demand problem continues, too. 

If we have a return to high temperatures on the east coast this summer (after one of the mildest summers in many years in early 2012), demand will be back pushing the asset envelope.

The Prime Minister, in opting to rush the gate on the power issue, has given the Senate committee minimum time to address a complex range of issues affecting billions of dollars worth of future investment as well as energy security.

She has given the nation’s energy consumers the impression that she will drive down prices  – and she cannot deliver for two very good reasons.
The first is that the current regulatory determinations run to 2014 and capex in train, even allowing for some cutting back by Queensland and NSW networks, will result in another round of price rises in mid-2013.

The second, looking out to 2014-19, is that maintaining reliable and secure power supply requires ongoing investment and the smorgasbord of federal and State green schemes are also adding to costs.

The truth is that, beyond the CoAG decision in late July to urge energy ministers to press harder for results from the eight current electricity market reform activities, the Prime Minister was ill-advised to throw herself in to the fray as she did.

In doing so, she has continued to ignore the requests from the nation’s energy ombudsmen for a national summit on affordability.

This is unconscionable – because those consumers on low incomes, who perhaps make up a sixth of the household customer base, are the ones who really need help and this assistance needs to come from governments via the welfare system, not by adding to the power bills of others.

As the Energy Networks Association has told senators, the public debate needs to shift from a search for scapegoats to genuine, and overdue, reform.

Some good may come from the Prime Minister’s strident intervention, but at present it is hard to see how it has helped rather than hindered.

Keith Orchison

6 October 2012

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