Clearing the air after an electric storm

Backed by the Greens, the federal government is following up Julia Gillard's recent foray into energy issues by moving to set up a Senate select committee to examine electricity prices.

The Minister for Finance and Deregulation, Senator Penny Wong, has called for the inquiry in a parliamentary notice of motion published on Wednesday.

Eight senators will make up the committee – four from the government, three from the federal Opposition and one from the Greens. It will be chaired by a government senator.

Wong proposes that the select committee will have five key tasks:

(1) To identify the key causes of electricity price increases over recent years and "those likely in the future.”

(2) To review the legislative and regulatory drivers of network investments and their impacts on electricity bills "and on the long-term interests of consumers.”

(3) To consider options to reduce peak demand and improve the productivity of the "national electricity system.”

(4) To investigate how households and businesses can reduce their energy costs, and

(5) To investigate "opportunities and barriers to the wider deployment of new and innovative technologies,” including distributed and renewable energy generation, energy efficiency and direct load control.

Included in the proposed work of the select committee is the way in which low income and vulnerable consumers are supported, "in particular relating to the role and extent of dividend redistribution from electricity infrastructure,” a move which follows the Prime Minister's controversial August 7 speech on the issue and her targeting of the new Coalition government in New South Wales.

How the Senate committee proceedings will interact with a number of other current activities – including the publication of the federal government's energy white paper, the Australian Energy Market Commission review of peak power demand issues and the AEMC's consideration of rule changes for the east coast market – remains to be seen.

The committee, judging by past experience, is likely to receive several hundred submissions.

Where and when it will hold public hearings also remains to be seen.

The government proposes that the committee deliver its final report on or before November 1 this year.

A potential political time bomb, however, is the proposal that the committee investigate "the opportunities and possible mechanisms for the wider adoption of technologies to provide consumers with greater information to assist in managing their energy use” – which cannot avoid industry proposals for a national roll-out of smart meters and pressure for the introduction of time-of-use charges.

Resources and Energy Minister Martin Ferguson called for this move in the speech he delivered in Perth three days after Gillard had gazumphed his Sydney speaking engagement.

In an indication of how politically charged the issue is – as demonstrated in Victoria, the canary down this coal mine – was to be found at the last CoAG energy ministers' meeting Ferguson chaired when other governments (Coalition and Labor) indicated it would be "a few more years” before they put their toes in these waters.

Broadly speaking, while the federal government is clearly seeking to build political advantage on Gillard's 'I have a big stick' speech about power prices, there is much to be said for a Senate inquiry of this kind.

It will help to focus more public attention on the key energy issues and provide an avenue for stakeholders to further present their views – and to be open to cross-examination on them by senators.

It also opens the path for the Coalition to set out its wares in this area. Production of a minority report by parliamentary oppositions is part and parcel of these inquiries. One could expect the Greens to want to contribute a minority report, too.

Meanwhile, the AEMC moved on Thursday to publish its draft report on one of the issues to be canvassed in the Senate: new rules covering regulation of network capex and opex and ensuing charges for consumers.

The commission intends to have the rules in place by this November.

Key proposals will (1) allow the Australian Energy Regulator to benchmark network businesses against each other, (2) require the regulator to publish an annual benchmarking report and (3) enable the regulator to take past efficiency in to account when determining future spending by networks.

In a statement that the select committee senators may benefit from reading carefully, AEMC chairman John Pierce says: "There is no one single cause of the rising costs of providing electricity and gas network infrastructure.”

He adds: "The revenues required by these network service providers are impacted by the external environment – such as electricity demand, the cost of capital and the reliability standards expected by the community.

"Price outcomes are also impacted by the effectiveness of management and shareholder oversight of network businesses.”

Pierce points out that the AEMC is working in several other areas to improve the efficiency of energy supply, including the 'Power of Choice' review of ways consumers can have more control over their electricity use and the prices they pay.

Also in the electricity supply space, the Australian Energy Regulator chairman, Andrew Reeves, is reported in the media as suggesting consumers could accept lower reliability standards in return for less onerous power bills.

Reeves' views are not available on the official AER website because, I am told by his PR staff, they were not delivered in a prepared talk but were comments made in panel discussion at a conference.

He is quoted as saying that the upgraded reliability standards now in place were imposed before power consumption patterns changed and infrastructure replacement sent consumer prices soaring.

"Had policymakers and everyone else been mindful of this combination of drivers, there would be different reliability settings,” he said.

(This got a headline in the Financial Review that reads "Blackouts a trade-off for cheap power,” which I venture to suggest is a long, long way from what Reeves was seeking to impart.)

One way and another, it's going to be a busy few months for the electricity suppliers and other stakeholders – with lots to write about, at least some of it coming from the little people at the bottom of the garden!

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of 'Powering Australia' yearbook, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.