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August 7, 2012
Gillard's Electricity prices: the facts speech to the Energy Policy Institute of Australia finally acknowledges that state government-owned electricity network companies in NSW, Queensland and WA, have been gouging households since 2007.This is not new---Ross Garnaut said that the country’s energy giants were gold plating their networks in March 2011, as part of the detailed updates of his climate change review.
The states have used the pricing of carbon as a cover and continue to do so. So does Abbott--electricity price rises were largely caused by the carbon tax. The reality is that energy price rises are well above the cost of the introduction of the carbon price and taking action on climate change. 9c of every dollar in an electricity bill (the retail price) is for the carbon price – and that’s fully compensated – while 51c is for the poles and wires.
The government regulators signed-off on monopoly networks spending more than $40 billion within five years doing upgrades of poles and wires to serve peak demand for a few days a year. The industry's rhetoric is that peak demand is going through the roof--from 38,000 megawatts today to more than 50,000 MW by around 2020 and climbing like a hockey stick.
Approved network spending will keep driving prices up over the next two years at least – and much of it is questionable. It turns out that we won’t need this, since the low wholesale prices over the last few years reflect the general state of oversupply on the National Electricity Market (NEM), due to falling demand.
The state governments were able to pocket a huge windfall of additional revenue from their network businesses. They use their networks to siphoning off millions per year in dividends. The states have abused their dual roles as owners and regulators of power assets by over-investing to maximise dividends. Even in the face of a clear downwards trend in actual demand, the industry continues to project hockey stick rises in consumption. The money spent on upgrading the networks is determined by these demonstrably wrong forecasts of demand and so, in turn, is their regulated return and the payola for the states.
Gillard is going to have to act on electricity prices as increased energy prices are political dynamite. Will that reform be through CoAG? The Australian Energy Market Commission has been captured by the industry it seeks to govern, whilst the regulator, Australian Energy Regulator, has said that the regulations which govern its decision-making process were overhauled, network operators, including state governments, will continue to overinvest in infrastructure, forcing consumers to cover the costs which the operators receive back as dividends.
The NEM has been set up to increase profits for the industry and it has little to do with social (the interests of the community in which the market operates,) or environmental objectives (climate change and energy efficiency). So why not make network revenue increasingly based increasingly on the success of energy conservation and efficiency initiatives, on the assumption of continued falling peak and total demand, with incentives for achieving even lower demand and penalties for overshooting forecasts?
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Now I get it.
A friend told me this was all about "gold plated poles"- now I see what they meant..
Heaven forbid the rake-in will be used for anything constructive, either.