Gillard's energy gift of hot air

Julia Gillard's promise to cut power bills by $250 a year looks less convincing when looking at post-COAG comments. In fact, power users are unlikely to find any Christmas cheer from the prime minister this time around.

It wasn't long ago that a clear pathway to more sustainable power prices was laid out before Australia.

As ministers were first gearing up for the COAG meeting on power issues, a bold statement from the Energy Supply Association’s Matthew Warren echoed in the air.

"We know how to fix the energy system,” he said. "Give consumers more choice via competition and deregulation. Provide real incentives to reduce energy use on days of peak demand. Clean up unnecessary subsidies and concessions.”

Viewed against this agenda, it is hard to see that the end of 2012 brings much actual progress in addressing the contribution of energy bills to cost of living pressures, notwithstanding the prime minister’s spin before and after the COAG meeting.

Julia Gillard keeps citing the Productivity Commission in support of her promise to consumers to cut power bills by $250 a year and it is instructive to go to the commission’s report on which she bases this claim.

At the moment, it is only a draft – the final version will appear in the first half of 2013.

I thought lawyers Clayton Utz, in a review of the draft back in October, summed up the commission’s views quite well:

"The commission suggests consumers’ needs have not been considered as they should have been in the decision-making process affecting electricity networks.” To enable consumer interests to regain this lost prominence, the commission calls for the creation of an industry-funded representative consumer body to participate in the regulatory process and it recommends a number of reforms:

– Customer consultation
– Phased removal of retail price regulation
– Statutory introduction (on the east coast) of smart meters, including demand management
– Time-based network and energy pricing for critical periods.

As Clayton Utz says, "It is suggested that (these moves) would ease the price pressure on customers and reduce the currently largely-hidden cross-subsidies from people who do not use power at peak times to those who do.”

To all of this the commission adds a call for state-owned network businesses to be privatised to improve their performance and for the Australian Energy Regulator to be better resourced.

Julia Gillard has been prepared to put her toe just so far in the water on all this and no further.

Test what she said after the COAG meeting and try to find non-spin federal commitments on these steps – you will have your work cut out.

On privatisation, she is in fact back-pedalling as fast as she can go.

Her position is revealed in a letter she wrote to the Queensland branch of the Electrical Trades Union – and leaked by the Newman government – after the energy white paper appeared.

Overall, she says in the letter her policy is to: "pursue market reform that focuses on achieving efficient future investment without undue price pressures on consumers and business while ensuring appropriate standards of reliability and maintenance.” Do note the bit I have italicised.

On privatisation, "the government has not and does not advocate for the privatisation of electricity assets...my government has no intention of supporting or advocating plans for privatisation.”

So that is one leg kicked out from under the new electric chair the Productivity Commission is trying to have carpentered.

Other legs are the phased removal of power price regulation by the states – she won’t speak up boldly for that – plus statutory roll-out of smart meters and time-based prices for peak periods.

Gillard’s take on this, quoting from the COAG media conference, is: "Jurisdictions have committed to report back to COAG next year on pathways towards more flexible electricity prices, where effective competition exists, to allow retailers to offer consumers better deal.”

And this: "(There is a) commitment to make it easier for retailers to offer innovative products to consumers (including) the choice to have such things as smart metering, in-home displays and time-of-use pricing so they may better manage their energy use and reduce costs.”

And when will all this happen?

The Productivity Commission says: "Critical peak pricing would produce savings of around $100 to $250 per household each year (after accounting for the cost of smart meters).”

Getting there from where Gillard and the first ministers are now is a long and winding road with a difference of about $1.2 billion a year between the lower and higher estimates of the commission.

Achieving any of these savings, however, let alone the $2 billion benefit a year Gillard is waving at east coast voters, is going to require a lot more than media conferences and standing on the high ground waving a fist full of virtual money.

The tenor of Gillard’s comments is that it is now all up to the state governments. She has done the important bit. It’s now Martin Ferguson’s job to shepherd the state energy ministers on down the road and their governments’ task to make the hard decisions.

This brings us back to the promise she has so prominently made to voters, and how they will react in 2013 to discovering – as new rounds of price rises are regulated at state levels or frozen by state governments at a cost of millions to taxpayers – that the promise doesn’t actually mean much in any time frame that matters to them.

To this will be added the start of determinations by the AER that will result in more billions being spent on network capex over five years from mid-2014 and therefore at least some additional charges.

As we all head towards our Christmas trees, we should be asking ourselves what exactly, apart from the shiny paper and the pretty bow, is our electricity gift from Santa Gillard?

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.