Labor gets zapped for consumer bill shock

Labor squashed the Productivity Commission's electricity price report as long as it could. That's not surprising given it points the finger at policymakers and recommends network privatisation.

Wholly obscured by the Labor leadership goings on, one of Julia Gillard’s last government acts was to finally table a report demonstrating that her much-touted power price promise of last December belonged in the ‘never mind the quality, feel the width’ stable of political rhetoric.

The Gillard promise to Australian households was that a $250-a-year cut in power bills would kick in “from 2014” as a result of reforms being supervised by her government and worked through the Council of Australian Governments.

She attributed this to the draft report on electricity networks by the Productivity Commission.

I wrote here and elsewhere at the time she said it and quite a few times afterwards that her advisers had misread the PC’s views.

The commission came good with its final report – which is a must-read document for anyone interested in electricity reform – on April 9, but Us Outdoors couldn’t read it because the Gillard government sat on it through April, through May and right up to the last days of the present parliament.

Gary Gray, the resources and energy minister, tabled it on the day the Labor caucus defenestrated Gillard, also tabling a 66-page government response to the 356-page commission report.

His 10-sentence media statement contained not one syllable about Gillard’s prices promise.

This is hardly surprising when you open the commission report and read the two-page summary, a revised version of what Gillard’s office mis-read (or misused) seven months ago.

One of the gains from a package of reforms, says the commission, is that careful implementation of critical peak pricing – that’s time-of-use tariffs – and an east coast roll-out of smart meters could be average savings of $100 to $200 per household per year after accounting for the costs of the meters.

The upper level of savings has been reduced from $250 (the number on which Gillard seized) ut the wording stays the same – and its implication could hardly be more clear: if you want to see this cut in your bill, you have to go along with smart metering technology (potentially a multi-billion dollar investment by the community) and you have to be prepared to pay more for using electricity in peak demand periods

Back in December, Gillard jumped on the cash number and ignored the caveats – and the Press Gallery in Canberra ignored that she had done so even though the power price issue has been one of the half dozen major domestic media stories of the past year.

The final PC report, to put it mildly, is chock full of nuts and, to a large extent, it is just going to lie there until we see the final acts of the current federal political drama and until a new government is firmly in the saddle for the next three years.

The most important aspect of the commission’s review doesn’t focus on “gold-plating” and all the rest of the mudslinging against network operators over the past 12-18 months.

Rather, it points the finger straight at policymakers and the tribe of rule-makers and tells them they have not done a good enough job.

Right up front in the report, the commission bells the cat:

“Average electricity prices have risen by 70 per cent in real (inflation-adjusted) terms from June 2007 to December 2012.

“Spiralling network costs in most states are the main contributor to these increases, driven by inefficiencies in the industry and flaws in the regulatory environment.

“These flaws require a fundamental package of reforms that remove the interlinked regulatory barriers to the efficiency of networks.

“Reforms made in 2012 have only partly addressed these flaws.”

The reform process, says the commission, is “tardy” and delays to reform are costing east coast consumers “hundreds of millions of dollars”.

In the firing line here is the Council of Australian Governments, chaired by the prime minister, and its “standing council on resources and energy”, now chaired by Gray and, if Tony Abbott still wins the federal election, most likely to be chaired next year by Ian Macfarlane.

They won’t want to hear it, but the commission also skewers successive state Labor governments, notably in New South Wales and Queensland, and the trade unions that shepherded them towards imposing inefficient reliable standards on the power networks.

Just adopting different reliability standards for the transmission grid, says the PC, could generate efficiency gains of $2.2 billion to $3.8 billion over 30 years.

“Reliability is critical to electricity networks,” it adds, “but some consumers are being forced to pay for higher reliability than they value.”

Given the badmouthing that has gone before, including from the highest level in the land, it is worth recording the Productivity Commission’s final word on the situation. “It is important not to blame network businesses for current inefficiencies,” it says. “Mostly, they are responding to regulatory incentives and structures that impede their efficiency.”

The commission is also firm in its views about the much-debated privatisation of “poles and wires” in New South Wales and Queensland.

“State-owned networks should be privatised,” it declares. “They have conflicting objectives (today) which reduce their efficiency and undermine the effectiveness of incentive regulation. Their privately-owned counterparts are better at meeting the long-term interests of customers efficiently.”

The federal government response tabled in parliament last week by Gray is notable for its weasel words in response to this.

The state and territory governments are “encouraged” to give consideration to the Commission’s recommendation, it says.

“However, ownership of energy businesses is a decision for the respective governments.”

And it adds: “Where jurisdictions choose to retain public ownership, additional steps should be taken to improve corporate governance, drive increased productivity in their operation and reduce conflicts of interest. This must include greater transparency on dividends and other payments to governments.”

Now, there’s leadership for you.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of OnPower, 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.