A twist in Ferguson's energy tale
State premiers grappling with spiking power prices won't find any solutions in Martin Ferguson's white paper, because it doesn't address the reform issue.
If you are in the business of exporting gas, these are the best of times. Despite Australia being one of the highest-cost LNG environments in the world, the industry is going gangbusters. The mining boom may or may not be stumbling, but rivers of gold will pour in here for years to come from the LNG projects now being built.
Overall, the value of national energy exports has more than tripled from 2004-05 when John Howard issued the last white paper, with an opening sentence that read: "Our enormous energy resources are a source of considerable prosperity for all Australians.”
However, if you are a domestic electricity consumer, these are not the worst of times – those occur when the supply system can’t cope, as India can attest – but they certainly don’t look especially flash when the power bills land, whether you are a householder or business person.
By coincidence, as Ferguson is releasing the final version of the white paper, New South Wales auditor-general Peter Achterstraat is publishing an electricity review that sums up in one sentence why governments around the country, and not least in Canberra, are desperate to give the appearance of being on the job in sorting out the price problem.
Average household bills in NSW in 2012-13, according to Achterstraat, are around $2,230 a year – up from $1,100 in 2007-08.
Giving the appearance of tackling this situation, and similar ones in other states, is high on the "to do” list for politicians, state and federal.
For Canberra, the only place to be is on the high ground, which is why the paper Ferguson is publishing acknowledges the hurt caused by higher prices and exhorts the states to eschew populism and embrace reform, including freeing household prices from regulatory control, bringing in tariffs that will flatten peak power demand, shaking up regulatory arrangements and giving consumers greater say when network decisions are being made.
Two state governments are critical to the success of this approach: NSW and Queensland, both under new management and both suffering the worst of the price problems after more than a decade of inadequate Labor governance of the power sector.
NSW and Queensland have almost 5 million of Australia’s 9.5 million household customers and half of the nation’s business customers. They account for 55 per cent of consumption.
How the two states choose to play the game when Ferguson chairs a meeting of resources and energy ministers next week – and when Julia Gillard chairs the meeting of first ministers in mid-December – is critical to how far and how fast the domestic energy reform process can travel.
The whole point of an energy white paper is to lay the policy ground for the long term, but this version – the third of its ilk in Australia since 1988 – is enmeshed in short-term politics, not least the tug-of-war between the Coalition and the ALP over carbon costs.
Achterstraat’s report gives a graphic indication of the point at issue: the carbon price and other green schemes, he says, account for 15 per cent of the current NSW average household bill, versus 25 per cent for production of energy and 50 per cent for its delivery (the 10 per cent balance is retail costs).
The auditor-general also quantifies the household cost of one of the core issues in the complex reform debate: the ability of the networks to appeal regulatory decisions to the Australian Competition Tribunal.
He says successful appeals are adding $1.9 billion to NSW residential bills, which sounds pretty big until you work out that it represents under $200 per customer per year.
The reliability issue – the cost of the "gold-plated” system that Labor legislated in 2007 at the behest of the unions – is estimated by Achterstraat to be worth another $1.5 billion over five years, or about $160 per householder per year.
What you won’t find being run up the white paper flagpole by Ferguson is the issue Gillard used to beat up on the O’Farrell government on August 7: the "gouging” issue of the dividends and tax-equivalent payments state-owned electricity businesses make to governments.
In the last financial year in NSW, says Achterstraat, the O’Farrell government garnered $944 million from its three distribution businesses as a result of the regime put in place by its Labor predecessor, which picked up $698 million and $710 million in the two previous years.
This does not include the "special dividend” that Premier Kristina Keneally and Treasurer Eric Roozendaal pocketed when they sold off the retail arms of the three distributors in 2010-11. That was $3.5 billion.
While Ferguson will be pleased to get the white paper monkey off his back – it has had a gestation period double that of its two predecessors, not least because of the leadership shenanigans in the government – and while he will rightly point to the big ticket implications of sustaining the energy export boom over this decade and beyond, the power problem is the issue du jour and the paper itself won’t tell the state governments anything they don’t already know.
The big answer getting media attention today – retail price deregulation, a smart meter roll-out and time-of-use tariffs – is the right way to go, but Ferguson and the federal government are in the classic "all care and no responsibility” situation.
A smart meter roll-out will cost several billion dollars on the east coast. Getting householders to change their energy use pattern is not easy. Dealing with the impact of these reforms on vulnerable households is tricky – do you subsidise their costs and smear it across all the other bills or do you add another big chunk of costs to taxation?
What the Dickens should the premiers do?