Whose market is it?

Presentation to Madgwicks' "Energy Report" discussion by Keith Orchison
(Melbourne, 9 March 2005)

Old habits die hard. For the past 30 or so years -- working in the pulp & paper industry, at La Trobe University and for APEA and ESAA -- I have sought continuously to see out in front of the herd for my employers, to detect evidence of changes in direction or environment that could impact on their operations before they become obvious.

There is no great magic in succeeding in this work; as with most things in life, it's 10 percent inspiration and 90 percent perspiration: in this case, spending very large amounts of time talking to people and reading voraciously is central to gathering the necessary intelligence.

In this new phase of my career since stepping down from ESAA I am not getting around as much as I did, and frankly don't miss the lifestyle that kept me in sort of perpetual, airborne motion. I averaged 50 trips a year out of Sydney in the early 2000s and, while the travel was necessary, I cannot say that it was particularly pleasurable.

Today I travel less, but perhaps read even more and can still cover very great distances via the Internet from my home office chair. The other advantage is that I get more time to think in this new mode -- I was not one of those people who worked and cogitated on planes. I slept.

All of which is by way of introduction to a brief commentary on a point that has struck home to me recently and which I have titled for this Madgwicks "Energy Report" Whose market is it?

The Australian Consumers' Association is in no doubt on that score. In its most recent submission to the current Productivity Commission review of energy efficiency, the Association has a number of trenchant comments to make about the current debate over airconditioning, summed up with the reminder that "Markets exist to serve consumers, not consumers to service markets."

The Association is vehement in attacking the current trend to paint users of airconditioning as being in the wrong in terms of the impact they have on infrastructure and on the environment.
Let me highlight handful of comments from its paper:

The bottom line in the ACA argument is that it is important to distinguish between price signals designed to encourage investment, produce a peak mitigation response and produce a baseload greenhouse abatement outcome.

Price signalling to consumers in the electricity market, it goes on to say, is unlikely to reduce usage except at levels that "will create bill shock and considerable consumer alarm."

The power pricing debate has many angles and, for my purposes this evening, I would like to stick with the other theme I detect: in the words of the ACA, the problem (as the Association complains) that technology-based industries constantly refer to "users" and hardly ever in complimentary terms. "Users," the Association comments, "are passive and, as such, their interests have to be looked after for them."

Now I need no lessons in the latent cynicism in the energy supply sector about the arguments of consumer lobby groups and not least about the tendency for them to argue endlessly for more and better without being realistic about cost. In this respect, I believe individual users are much more pragmatic -- by and large they don't expect to get things for nothing, or next door to nothing, but they equally are suspicious that they may not be being treated equitably when the costs are handed out.

In this context, I should also like to draw attention to the views of another group, whose lobbying power is not unknown to the energy suppliers -- I refer to the energy-intensive manufacturers, who account for about a third of the electricity consumed in Australia.

In recent weeks they have taken exception, in the course of the ongoing discussions with the CoaG Ministerial Council on Energy on market reform, to what they perceive as a proposed shift in the national electricity market objective.

The proposed new objective is to promote efficient investment in, and use of, electricity services for the long term interests of consumers of electricity with respect to price, quality, reliability, safety and security.

The existing objective of the market is to promote the long-term interest of consumers of electricity with respect to price, quality and reliability of electricity services, and economically efficient investment and innovation.

Hold on, the energy-intensive manufacturers are saying, what is now proposed by the MCE's public service advisers is a shift from meeting the consumers' interests to virtually supplanting them. This, they say, is a worrying sign because the objective is also the market's rule-making test and will drive virtually all aspects of market operations.

The energy-intensive manufacturers argue that the changed emphasis of the objective, as they see it:

The energy-intensive manufacturers argue that the market objective should be to promote the long-term interests of consumers (with respect to price, quality and reliability of electricity services) through efficient operation of the market.

These business groups -- representing the paper industry, the cement producers, the aluminium industry and the manufacturers of plastics and chemicals -- are, in effect, at one with the Australian Consumers Association in arguing that the market must be driven by the genuine needs of consumers and not the needs of users as interpreted by parties wishing to invest in infrastructure.

There is no denying that the issue of consumer interests versus investor interests is complex and difficult to resolve in electricity supply as in other industrial sectors. In the case of the electricity market objective, with the NEL legislation now going through the South Australian Parliament and with the goal framed more or less as proposed by officials, the concern of the energy-intensive businesses has, in effect, been over-ridden.

Nonetheless, one of the simple lessons of the past 30-something years of my working life is that it is Joe Citizen who votes and not Joe Corporation, and well the politicians know it.

An issue that may be emerging for energy suppliers is that Joe Citizen and Joe Energy-Intensive User may find the means in this debate to make common cause, and that will have resonance with the politicians in a year in which some further, fundamental decisions have to be made about the energy markets.

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