Electricity: an expensive mess

The Conversation

The Senate Select Committee on Electricity Pricing tabled its report in Parliament on November 1. The inquiry found substantial evidence of failures in the rules and operation of the electricity market, even though the electricity sector says it is taking adequate action to deal with a range of issues.

The report commented (para 3.101) that the various electricity market participants indulged in blame shifting and called for “greater collective responsibility for overall electricity prices”.

Stronger regulation needed

The inquiry recommended major revision of network regulation. The report states (para 3.100) that “… the overall electricity price increases experienced by Australians are completely inappropriate and unacceptable.” The committee (para 4.43) found that present regulations had driven unnecessary electricity price rises.

It is very clear that the committee considers the energy regulator is weak and grossly under-resourced relative to the energy businesses, and recommended stronger powers (paras 4.22 and 4.75), additional resources and more public information and analysis.

The report states clearly (para 4.2) that overarching responsibility for Australian energy policy and oversight of the National Electricity Laws and Rules “rests with the Standing Council for Energy and Resources”, a COAG body made up of energy ministers.

Energy ministers have failed over many years to ensure the electricity market serves the long-term interests of Australian electricity consumers, even though that's what the Market Objective says they will do. Indeed, the welfare of the electricity industry and its owners seems to have been placed ahead of others, given the 67 per cent increase in profits between 2007-08 and 2011.

Managing demand – smart meters and time-based pricing

The committee did not go as far as the Greens and some submissions proposed, to recommend including environment in the NEM Objective. But it did propose (para 4.82) that policymakers better align environmental considerations and the operation and regulation of the electricity market.

The slow response to market failures was highlighted by Dr Paul Troughton from EnerNoc (para 5.53) when he pointed out that there had been many reviews and many “vague recommendations but no actual meaningful action”. He suggested that over the past decade, $16 billion has been invested in supply side infrastructure that should not have been needed.

Evidence presented to the inquiry overwhelmingly showed that demand management measures not pursued under present market rules could save $1.6 to $4.6 billion over the next decade. The committee enthusiastically supported moves towards smart meters and a range of time-based pricing measures – balanced by protection and support for low income and vulnerable households (para 5.46).

No-one raised the point that people at home on hot afternoons miss out on being provided with subsidised cooling by their employers: so is it fair to charge high prices for households at that time of day?

Other measures were also recommended: allowing third parties to offer demand management services to consumers (para 5.60), and providing improved consumer information to support more informed decision-making (para 5.68).

Where do energy efficiency and distributed generation fit in?

Energy efficiency improvement received limited attention in the report, although there was wide agreement that it was a good thing (para 5.100).

The committee supported existing government energy efficiency programs and grants (5.100). Perhaps the committee members could have a word to the econocrats who seem keen to cut any energy efficiency program that isn't deemed “complementary” to carbon pricing, and the state governments that have recently cut energy efficiency programs.

The Energy Supply Association of Australia (para 5.89) also supported energy efficiency, but suggested the focus should be on areas of major saving potential such as heating, cooling and hot water, rather than “symbolic” areas like lighting and TVs. Clearly the ESAA could do with some good advice on what households and businesses use electricity for, and where the savings potential lies.

The ESAA did express concern about a serious lack of end-use data in its presentation to the committee, so their comments underline the need for better data! Maybe ESAA could encourage the residential building industry associations to reverse their opposition to more stringent building energy regulations to cut heating and cooling driven peak demand and energy waste….

The complex barriers to distributed generation projects were also discussed at length (para 5.108). Connection processes need streamlining, network market power has to be controlled, we need fair pricing (para 5.110) and redesigned networks.

The inquiry recommended empowering ombudsmen or tribunals to intervene when disputes could not be resolved by the parties. It said (para 5.132) policymakers should review market rules so embedded generators are charged only for use of the section of the network they utilise, instead of full network charges: this could be a game changer.

Giving consumers a say

The committee recommended a national consumer advocacy body with sufficient resources to represent consumers in electricity market regulatory processes and provide support and information to consumers (para 6.43). It also addressed the vexed debate over introduction of a National Energy Consumer Framework. The NECF is intended to provide consistent consumer rights across all jurisdictions in the National Electricity Market.

However, most states have refused to sign up, some because its protection is inadequate and others because it is too strong! The committee recommended the NECF be implemented, without diminishing existing consumer protections in any jurisdiction. Presumably this means a basic NECF, to which individual jurisdictions could add extra elements to maintain existing local protection measures.

Other voices

The opposition, Greens and independent Nick Xenophon submitted additional comments and recommendations.

The opposition recommended removing the carbon price, and keeping environmental considerations out of the rules and operation of the electricity market. At least someone agrees with the energy sector on something.

The Greens called for formal inclusion of environment in the market objective, and no regulatory barriers to demand management, energy efficiency and distributed generation. They also proposed: a single independent energy planning agency; de-coupling regulated revenue for distribution networks from energy consumption; study of peak demand targets; options for greater demand-side participation and a fair standard connection regime for distributed generation.

Senator Xenophon wanted more research into the actual cost impacts of renewable energy programs, to resolve the very varied claims made to the inquiry. He called for more analysis of the benefits of encouraging baseload renewable energy such as geothermal (South Australia has substantial resources) and expressed strong concern at the high salaries of energy business leaders.

Where to from here?

The inquiry has shown that, from consumer, environmental and emerging industry perspectives, the National Electricity Market is in chronic failure mode. Yet energy policymakers are adamant their focus should be on “economic” efficiency. They say other factors are best dealt with by other policy agencies, and that existing problems can be dealt with by the processes they already have in place.

This is a major cultural conflict. It has led to a situation where energy policy is in fundamental conflict with other policy. This conflict is undermining progress across broad economic, social and environmental areas.

If COAG does not step in to address the energy objectives, governance and operational issues, and the conflict between energy policy and other aspects of policy, we will remain in a dysfunctional and expensive mess. The content of the imminent Energy White Paper will indicate the balance of power.

Alan Pears has been working on sustainable energy since the late 1970s, and climate issues since late 1980s. He is Senior Lecturer, Global Studies, Social Science and Planning at RMIT University.

This article was originally published by The Conversation. Republished with permission.