When the Australian Consumer and Competition Commission (ACCC) released its 175-page Retail Electricity Pricing Inquiry preliminary report today, chairman Rod Sims said the main reason bills have gone up was higher network costs.
It was “a fact which is not widely recognised,” he added.
If so, then it’s only because people haven’t been paying attention — and perhaps because the debate over a carbon tax took most of the spotlight.
Alarm bells over the so-called “gold-plating” of the network were sounded as far back as 2012 by the Australian Senate’s Select Committee on Electricity Prices in a 212-page report that pointed the figure squarely at over-investment in network costs in the midst of the $45 billion build that Sims now describes as “‘locked-in’ and will burden electricity users for many years to come”.
“Current regulation of the National Electricity Market (NEM) creates a perverse incentive for network businesses to engage in inefficient over-investment,” the Labor-dominated2012 senate report said.
The inquiry was held within the context of the fight over the carbon tax, but offered a series of recommendations focusing on a tightening of the rules around network capital expenditure amid $45 billion worth of “gold-plating” that saw power company profits soar as power bills rose dramatically too. It called for increased scrutiny of energy companies and what they were doing — something Malcolm Turnbull is seen as doing of late, especially when it comes to gas supplies.
Re-reading the 2012 report turns today’s ACCC report into a bad case of deja vu.
Here’s the Senate report five years ago:
Most residential consumers are poorly informed when it comes to retail electricity arrangements, the price of electricity and how their electricity consumption impacts on their bill.
As a consequence, consumers have been unable to choose retail electricity offers better suited to their needs or modify their electricity consumption in ways that would help minimise their electricity costs.
Further, and also to the detriment of consumers, their interests are poorly protected and represented in the NEM.
Here’s Sims today:
“Consumers and businesses are faced with a multitude of complex offers that cannot be compared easily. There is little awareness of the tools available to help consumers make informed choices or seek assistance if they are struggling to pay their electricity bills,” he said.
“Many of these issues arise from unnecessarily complex and confusing behaviour by electricity retailers, and in some cases this appears to be designed to circumvent existing regulation.”
In 2012, the Senate was concerned about peak demand pushing up prices and among several recommendations, wanted to “introduce changes to the regulation and operation of the NEM (national electricity market) that would encourage and allow consumers, or authorised third parties, to sell their demand in the wholesale electricity market.”
In some aspects the senate report was ahead of its time as home-based power generation began to surge.
“The committee heard that network design, connection and cost barriers currently impede energy produced via embedded generation being fed into the grid. The committee believes that SCER should examine these barriers and consider appropriate regulatory and operational reforms to encourage the connection of embedded generation to the electricity grid,” they said.
The issue of network “gold-plating” has been widely canvassed ever since.
Professor Stephen King, from Monash University’s Department of Economics, a former ACCC commissioner, raised it in 2014 amid the debate over the carbon tax, pointing out that power prices in NSW more than doubled between 2007-08 and 2013-14, to $2073, with $580 due to network costs, while the carbon tax added A$172.
Perhaps the ACCC chairman missed journalist Jess Hill’s wide-ranging 2014 piece on how “gold-plating” happened for The Monthly. Even now, three years on, it’s a worthwhile background read on the issue.
Hill also wrote about it for the ABC, so it’s not that the issue is “not widely recognised”, so much as not widely acknowledged, because the issue has been canvassed extensively with depressing regularity.
Another reason the ACCC and Sims should be well aware is because among the many talking about the issue was Joe Dimasi, a commissioner from 2008 to 2013, who used to run the competition watchdog’s regulatory division, which included energy.
In 2015, as Monash University’s Professorial Fellow, Department of Economics, Dimasi was writing about yet another senate investigation, this time into “the performance and management of electricity network companies”, which yet again “identified over-investment as a key reason for the increase in electricity prices”.
“But in choosing to focus on the most difficult and complicated area for regulators and governments to grapple with – what the efficient level of investment for these businesses is – the inquiry has struggled to come up with solutions,” Dimasi wrote.
“One of the key recommendations is for yet another independent review to look at ways to exclude future imprudent capital expenditure and surplus network assets from a network service provider’s asset base.”
The committee encouraged state governments looking to privatise their networks to examine those networks to see if they are overvalued and to write them down if they are.
“Good luck with that last recommendation,” Dimasi said.
And here’s what he had to say about the 2015’s plan to tackle over-expenditure, including the fact that the ACCC used to oversee the issue:
The recommendation to look at options to exclude imprudent capital expenditure from future capital programs, is back to the future. A higher threshold regulatory test for new transmission investment was applied by the past regulator, the Australian Competition Consumer Commission. This was effectively a cost benefit analysis.
The test was watered down by policy makers concerned that the regulatory system could chill investment – even though capital expenditure programs were growing strongly. In fairness, the test was extremely difficult to understand and to implement.
A crucial point made by Dimasi is that basically the sector will always find ways to outsmart a cumbersome regulator.
Another nine months are about to pass before the ACCC hands down its final report into ways to cut power prices. It will no doubt take some months after that before the government forms a response, with an election less than 12 months away at that point.
In that context, remember that Elon Musk founded his Tesla battery business in 2015 — and will have the world’s biggest lithium ion battery storage opening in South Australia by Christmas.
Very little of what the ACCC had to say today is unfamiliar to anyone with even a passing interest in energy policy in this country. It’s been said over and over and over again for several years.
And just as the political bickering about Australia’s energy policy has a Groundhog Day repetitiveness to it, voters can expect to hear the same issues and talking points being repeated over and over again as very little changes.
The full ACCC preliminary report is here.
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