Gillard is playing with live wires

Julia Gillard's promise to cut electricity bills by 2015 is based on some truly presumptuous assumptions. And any reduction won't happen until after the election year, during which bills will just keep rising.

Making promises to voters about cash benefits that you can’t keep is a dangerous political game. After Friday’s Council of Australian Governments meeting, the prime minister should start thinking hard about this.

Otherwise, when the next federal election arrives, she may find herself in a similar position to her predecessor Paul Keating, whose L-A-W tax cuts notoriously backfired on him when they failed to appear between 1993 and 1996.

Julia Gillard could hardly be more clear about what she is promising – a $250 cut in the household power bill.

She told reporters in Canberra on Friday that the CoAG decision on electricity reform “will make a difference for the long term of $250 for Australian families on power prices.” And she said “some savings will start to flow from 2014.”

Translated: nothing talked about at CoAG is going to cut your power bill in the election year, 2013.

Premiers Barry O’Farrell and Colin Barnett each told reporters after the meeting that consumers probably will not see the $250 in annual savings but “hopefully” the direction of reform CoAG is embracing will mean future power bill increases will be smaller than in the past four to five years – when they have risen between 50 and 80 per cent.

There are two states in which Gillard’s political future can be destroyed next year.

In New South Wales, the independent state pricing regulator began work last week on what power price increase will apply from July 1, 2013 as the impact of network expenditure and of green schemes, including the carbon price and the renewable energy target, continues to flow through to consumers.

The new, higher bills will start to be delivered in September/October next year.

In Queensland, Campbell Newman’s cash-strapped government is confronted with making a decision soon about whether or not to continue the price suppression trick he pulled after the state election at a cost to taxpayers of about $60 million a year.

He is also standing front and centre before the nation’s biggest political problem inherent in the pursuit of deregulating power bills – the $640 million a year subsidy to Queenslanders living outside the state’s south-east corner.

Gillard’s promise rests on four pillars.

The first is reform of the rules under which the Australian Energy Regulator considers power network bids for capex and opex. This is a highly complex area and what is being proposed by the review process is still short of being finalised.

Meanwhile, past AER decisions on network charges continue to work through the system and will result in further increases in 2013.

Part of the proposed long-term attack on network charges is the replacement of state-by-state safety and reliability standards with a national regime. How long will the cumbersome federal process take to deliver this?

Gillard’s pledge also depends on deregulation of retail energy prices – something that energy retailers and economists have been urging for ages but which governments in Sydney, Brisbane, Adelaide and Hobart are reluctant to embrace.

(Western Australia lies outside this whole process – the changes are being mooted for the so-called “national electricity market” that applies on the east coast.)

Only Victoria has implemented retail price deregulation to date.

The third leg of Gillard’s plan requires the roll-out of so-called smart meters and the introduction of time-of-use charges designed to make consumption of electricity very expensive between 2pm and 8pm and much cheaper at other times in an effort to lop the top off peak demand.

As pointed out last week by academic Lynne Chester, with whom I sat in 2011-12 on Martin Ferguson’s energy white paper reference group, how many households can or will shift 20 per cent of their power demand out of the 2pm to 8pm period?

If they don’t, under ToU pricing, their bills will shoot up.

One of the biggest political problems with ToU is its impact on consumers who, for whatever reason, can’t change their electricity consumption pattern.

The Brotherhood of St Laurence wants an urgent investigation of this issue but there was none announced by Gillard on Friday.

Finally, there is prime minister’s much-hyped consumer challenge panel, to be included in the AER set-up.

This is an idea pinched from Britain, where the panel is made up of experts (not consumers) who are asked to critique network bids for capex and opex.

The rub is that it is an advisory panel and the regulator is not required to accept its views – any more than the AER will be here.

Lynne Chester argues that what Gillard is proposing is not a plan to cut power bills but a Band-Aid: “a temporary cover to stem the political blood loss” – a view with which I agree.

“If this Band-Aid is the extent of reform we can expect,” argues Chester, “swallow hard everyone because there is not much relief in sight for your electricity bills.”

Which, of course, brings us to asking when the community will wake up to Gillard’s ploy?

Can she keep this pony trotting around the political ring at least up to the next federal poll?

The answer lies in the Coalition and the media actually examining the basis of her 'fist full of dollars' promise.

Gillard keeps pointing to a recent Productivity Commission’s report – a draft review of network benchmarking – to support it.

Here’s what the commission actually says: “Critical peak pricing would produce savings of around $100 to $250 per household each year (after accounting for the cost of the smart meters).”

Note the savings range: spread across eight million east coast households, that’s a discrepancy of about $1.2 billion a year.

The commission’s preferred position is that all households should be required to have a meter.

In other words, a compulsory east coast roll-out as in Victoria.

Does Julia Gillard support this?

If not, how does she justify the $250?

In what year does she claim that this benefit will be delivered?

These are all questions “churnalists” could have asked her last week but didn’t.

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.