High-voltage misinformation

The histrionics over rising power prices has little to do with sensible analysis of the country's electricity needs and everything to do with attention grabbing tabloid headlines.

To steal a quote from Paul Keating, every galah in the pet shop now has an opinion on electricity supply, on "gold-plating” networks and on the pressure power bills are having on the cost of living.

This is a situation contrived, in fact, by a relentless tabloid tirade about power bills over about three years that reached some sort of apogee in August when Julia Gillard elbowed her energy minister off-stage so she could rant about how the cost of electricity is "the new petrol price” and then set up a short-run Senate select committee to investigate the issue.

As with so much else in the public arena, there is a fire buried below the smoke – it’s how the smoke signals are being interpreted that is the problem.

Of course, householder (and small business and big business) power prices have risen sharply over the past five years – for a veritable raft of reasons, several of them flowing from federal and state government decisions – and people on low and/or fixed incomes in particular have found it hard to deal with this.

While the numbers are rubbery, it seems likely that there could be about 300,000 to half a million households on the east coast that are suffering energy stress – and the state energy ombudsmen quite rightly would like to see a national summit on how government can alleviate such distress, a request Gillard has resolutely ignored over about six months.

There are, however, just over nine million households on the east coast and I take leave to doubt that the majority of families in them lie awake at nights worrying about how to pay the electricity (and gas) bills.

Yes, the opinion polls keep telling us that power costs rank among the top concerns of the populace, but how much of this is real and how much is a reaction by many people to being told daily by the media (and politicians) that this is a major national issue?

After all, we know that four out of 10 of people polled believe that Gillard’s carbon price is a big cause of price rises – a tribute to the unrelenting campaign Tony Abbott and the Coalition has been running – but this is also nonsense, as any glance at the "charge stack” for electricity will show you.

Adding the carbon price to rising power bills was dumb politics in my book, especially after promising they wouldn’t do it, but, as Gillard, Greg Combet and Wayne Swan are forever trying to get across, its contribution is about 10 per cent before taking in to account the whacking great compo that the government is throwing at 70 per cent of households.

Dissecting the pricing issue in detail would require a book rather than a commentary, but let’s take Victoria as an example – just because we have some recent figures and also an egregious piece of media coverage that helps to make my point.

Let’s start with The Age running a story on October 3 under a headline "Bills to climb by $255 million” with an opening sentence that said "Victorian households will be charged an additional $255 million over the next three years after the Australian Energy Regulator revised the amount distribution companies could charge.”

Of course, the next sentence managed to work in "slugged” – it is obligatory if you are writing about this issue for the mainstream media to include it, or some other inflammatory word, high in the story.

Anyone who works with the media can tell you that busy readers (viewers, listeners, whatever) take in a headline and some opening stuff and little else.

So Victorians, already convinced that power bills are the bane of their lives, have the message all wrapped up in the headline and opening paragraph – slugged again.

However, what is actually involved after the Australian Competition Tribunal told the AER it had got its arithmetic wrong is that the average extra cost for Victorian households in 2013 will be $40 with similar add-ons in 2014 and 2015.

Divide $40 by 52 weeks and what do you get?

Seventy-seven cents a week or 11 cents a day.

That’s a real slug!

As The Age reports, the biggest price rise as a result of this decision will be $100 over three years for households in the Jemena franchise.

Divide that by 156 and what do you get?

Sixty-four cents a week!

Now the Victorian Essential Services Commission has just published a report of what has been happening to state power bills over five years (2007 to 2012).

For households sitting on the regulated tariff, and a third of Victorian households do, costs have risen 33 per cent.
The ESC also points out that, if these customers switched to a fully-discounted market offer from energy retailers, they could save $114 a year.

And it reports that average household electricity bills in Victoria range from $1,245 to $1,602.

Divide that by 52 and it’s $24 to $31 a week – the price of a cup of coffee a day (depending on your cafe standards) to deliver an essential service down a huge web of machines, pylons and cables while ensuring community safety.

Yes, power tariffs are a labyrinth.

Retailers and bureaucrats are still scratching their heads over how they can help millions of households to cope better with the process of hunting down a good deal in a competitive market.

Some smart operators are making a buck (and good luck to them) out of hoovering up home accounts and finding bulk discounts.

As with so much else, the best advice is read the tiny print before you sign.

That’s a discussion for another day.

My point here is that the "slugged again” reporting by newspapers and the media generally is now a weekly occurrence and it has created a public mood that the likes of Gillard can play like a violin.

Anyone who wants to shout abuse at the power suppliers is assured of a hearing – and the explanations of why things are as they are is so arcane that, for Joe Citizen, the suppliers might as well be talking sanskrit.

However, there is a very serious side to all this.

The dangers are illustrated in two quotes (taken from a long submission to the Senate committee) from the NSW Energy & Water Ombudsman:

(1) Network security and supply without interruption are valued highly by consumers and any over-reaction in response to "gold-plating” concerns may result in a future price shock if there is under-spending on capex needed to ensure security.

(2) Alternative technologies are not necessarily cheaper in the short to medium term. Smart meter technology alone comes at a significant cost to consumers.

In short, yes there are issues about how electricity suppliers have been managing their businesses, how government interventions have driven costs and how effective the network regulator has been – these are all being pursued through eight substantial expert reviews under way long before PM Big Stick embarked on her stunt.

Which leaves us with the prospect that the tabloid media handling of this issue is simply encouraging the 'galahs in the pet shop' to drown out sensible debate.

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.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles