Energex 'fattening' is not what it seems

A seventh of the Australian population might soon find out the hard way what 'gold plating' in energy networks really means.

It’s not every day that a state government-owned electricity network business finds itself the centre of an inquiry in federal parliament.

This is the fate of Energex as a Greens-Labor-PUP-supported Senate review gets underway.

The Greens’ agenda, as set out by Christine Milne and Larissa Waters, is to uncover whether the distributor’s infrastructure is really needed or whether “Energex has been given the go-ahead (by the Newman government) to fatten up the pig before the slaughter of privatisation.”

The veneer for the assault is a mandate to the reviewing committee to investigate whether electricity companies provide misleading data to the Australian Energy Regulator when it determines their annual revenue.

As it happens, October is the month that Energex is submitting its bid to the AER for capex and opex approvals and resulting revenue for the period 2015 to 2019.

Furthermore, October is when Energex, which serves the electricity needs of 3.2 million people – a seventh of the national population – wedged in to the south-east corner of Queensland, publishes its annual report.

Former Northern Territory chief minister Shane Stone, who chairs the Energex board, sums up the performance of the business thus: “On our patch, when you flick the switch, it works. On occasions when natural disasters bring down the system, we have it back in record time.”

To those who really know the power game, this is a pointed comment.

Energex’s inability, after years of suppressed capex outlays, to satisfy the SEQ customers’ needs really rocked premier Peter Beattie’s political boat in the early part of the past decade and led not only to an $11 billion capital outlay in Queensland as a whole but also sparked the regulatory reforms that underpin the huge east coast networks outlay of the past decade and the resulting doubling of mass market power bills.

The Beattie recovery moves and subsequent political decisions, including one by his successor, Anna Bligh, to launch a madcap solar subsidy scheme, have seen Energex sitting front and centre in the dramas now affecting east coast suppliers and troubling energy policymakers.

Soaring prices have resulted in Energex’s household customers cutting their demand almost 20 per cent in five years, reducing the network’s residential average consumption from 7,400 kWh annually to 6,000 kWh this year.

Overall, its 2013-14 residential and business energy demand (21,719 gigawatt hours) was 1.7 per cent lower than in the previous financial year – with maximum summer demand 2.3 per cent below the 2012-13 level and more than eight per cent below the peak reached in 2010.

Like other east coast power networks, Energex now finds itself caught between the rock of a smaller base for recovering capital outlays (and paying for its capex borrowings) made in anticipation of growing demand and the hard place of having many assets that were commissioned between the 1960s and 1980s, putting them now close to their use-by date.

At the same time, as in Melbourne and Sydney, population growth sees more housing estates and demand to expand the supply system.

Even after cutting back on its building plans, Energex still spent $716 million in its capital program in 2013-14 while outlaying $285 million on maintenance.

Over five financial years, it has outlayed $4.8 billion on capital works, including almost $1 billion on asset replacement and another $932 million on works requested by customers.

Energex is also on the front line of the solar challenge bothering all networks today.

It now has 260,000 households with rooftop PV systems and the demand continues to grow by an average 3,000 a month long after the Newman government consigned the Bligh scheme to the dustbin.

During 2013-14, a record $227 million was paid to Energex’s residential solar brigade via feed-in tariffs, bringing the payout since Bligh launched her scheme in 2009 to $465 million – all money that is recovered from the total customer base via higher prices.

There is another extra cost. So far Energex has spent almost $64 million on activities – from meter connections to voltage complaint work – related to the dash to PVs. The customer base as a whole pays for this, too.

There’s one more important statistic buried in the welter of reporting data: in 2013-14 Energex delivered $400 million in dividends to the Queensland government, a major component in the $620 million shelled out by taxpayers to power consumers in the other 97 per cent of the state as part of the long-standing tariff equalisation scheme.

Cry “gold-plating” and slash the dividend and state taxpayers will have to dig in to another pocket to keep up the subsidy, because neither the LNP or Labor is going to go to the 2015 state poll telling rural Queenslanders that they are kicking away this crutch.

The network business as a whole is cross about the Senate inquiry. “Consumers don’t need another one,” says the Energy Networks Association. “They will derive no benefit from injecting more politics (in to energy reform).”

The other side of this coin, I suggest, is that there is no harm in exposing the Canberra politicians to a dose of real life.

Energex and other networks have the numbers to explain what it takes to ensure that power is there when the switch is flicked – and they are being given the opportunity to rub political noses in what needs to be done to ensure customers pay equitably for the privilege.

If I was still in the electricity lobbying game, I’d be treating this as an opportunity not an imposition.