Dangerously hooked on power

Fox hunting has been described as the unspeakable in pursuit of the inedible... and we may have to find a version of this idiom for 2013 to describe politicians chasing voter attention over power prices.

Coalition leader Tony Abbott is at it with his promise that "the carbon tax will be gone so power prices will fall.”

Well, actually, they may not.

Yes, abolition of the carbon price regime by a victorious Coalition will reduce the costs that make up an end-user power bill by about $160 a year, but it isn't hard to think of factors (including higher network charges, a higher cost from the renewable energy target scheme and the medium-term impact of higher east coast gas prices on the wholesale electricity market) that will have a counter impact.

The key poll battleground for the Gillard government and the Coalition is north of the Murray: New South Wales and Queensland.

These states are home to 4.8 million households, a fair few seething over the fact that their power bills have risen from about $1,200 a year when Kevin Rudd triumphed over John Howard to around $2,300 annually now.

On current trends, these bills may be about $2,800 by 2014-15.

Killing the carbon price will reduce this growth but it will not make power prices fall.

Julia Gillard's tendentious use of a Productivity Commission report to claim that she can deliver a $250 a year power bill cut – which would hand households north of the Murray some $1.2 billion a year – doesn't highlight that these states will need to embrace a smart meter rollout and time-of-use charges to gain this benefit.

(The Productivity Commission has pointed out that the gain could be between $100 and $250 a year – the prime minister, of course, has chosen to highlight the larger number – after households have paid for the meters. On numbers being bandied about by the Queensland government, the aggregate cost for these meters north of the Murray could be as much as $3 billion to $4 billion.)

When she launched herself in to the power debate in Sydney in August last year, Gillard summed up both the political attraction and the challenge of this situation.

She said: "Too often the cost of electricity is talked about in two completely separate public conversations. One is about power bills. There's a discussion going on at the kitchen table, in the school car park and in the front bar about this. The other is a very complex discussion at cabinet tables and around board tables about dividend policy, reliability standards and peak demand.”

And she also pinpointed the lure of the issue for politicians: "Power bills have become the new petrol prices – not just an essential of life that always seems to be going up, but a vital commodity, where what we consume each day, or pay every quarter, seems beyond our control.”

The danger for Gillard, Abbott and many others in politics is that, in chasing the populist line on this issue, they trip over the complexities.

This is not a new trap. Australians today are literally paying the price for politicians having fallen in to it a decade ago.

The current rules governing network investments (and therefore network charges, which make up half the end-user bill) were pushed through by east coast political leaders, including the Howard government, because there was growing community concern that investment in critical infrastructure was insufficient to support economic growth and to maintain security of power supply.

The rules were explicity designed to promote network investment.

Now the politicians are trying to redesign them because power bills are "the new petrol prices.”

Abbott has an advantage in the current debate because Gillard's carbon price rests on a con job she pulled at the 2010 election, something the opinion polls still show that a fair few voters resent.

However, if the Coalition can win the 2013 election and succeed in getting amending legislation through federal parliament, Abbott will be confronted by the fact that he is a one trick pony – what will he do next to deal with the complex, underlying issues?

Regardless of who is prime minister on September 15, the problem of dealing with peak demand will remain, and nowhere more so than north of the Murray – where community urge to own air-conditioning is at its highest.

A quarter of the power bills in New South Wales and Queensland – about $500 a year for a typical family home – are the result of investment to meet peak demand on a few days a year, like the January heat wave that drove the load close to record levels.

Much of the $11 billion invested in network infrastructure to deal with this issue – about a sixth of the total investment in networks – has been spent in these two states.

For the suppliers, the answer to the power price issue is clear, if not straightforward.

They want the federal government to shepherd the state governments in Brisbane and Sydney to do what those in Melbourne and Adelaide (as of February 1) have done: deregulate electricity price controls.

The Energy Supply Association points out that power bills in Melbourne, where deregulation was phased in between 2002 and 2009, have risen 60 per cent less over 15 years than in Sydney.

If you want to curb the price shocks, ESAA argues, you must deregulate in New South Wales and Queensland to enable households to shop around for deals that suit their consumption patterns, use smart meters to help drive big improvements in energy efficiency and embrace tariffs that push consumers to use electricity in off-peak periods to the greatest extent they can.

Economically, this is the only way to go – but it is political dynamite and just the roll-out of smart meters was a factor in undoing the Bracks/Brumby Labor regime in Victoria.

Whenever this issue is discussed at the Council of Australian Governments' energy ministers committee, state politicians walk away from any real action.

Gillard has hung herself out to dry on power prices and Abbott will find the trap waiting for him once he has dealt with carbon prices.

The real disservice that Gillard has done her own and future federal governments is that Canberra has taken responsibility for solving the problem – but it is one that can only be resolved by the governments and parliaments in Sydney and Brisbane.

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.