Passing the electricity price baton

Tony Abbott's playing the power card, but the causes of high electricity prices remain. Fixes are still at the edges and require years for implementation.

As Julia Gillard seeks to thrust herself back in to the political limelight over the carbon tax, it is worth pointing out that it is coming up to a year since, as prime minister, she sought to assauge Australian anger over electricity prices by threatening to take a “big stick” to the year-end CoAG meeting to force reforms.

Gillard is gone from the possum-infested Lodge, but her and her party’s nemesis, Tony Abbott, are still playing the power card with the new Prime Minister dubbing her Labor leadership successor “Electricity Bill.”

Leaving aside the shenanigans over pricing carbon, use of the soubriquet serves as a reminder that electricity prices are still extremely politically sensitive and the impending surge in the cost of gas on the east coast will add to the angst about energy at household kitchen tables and corporate board tables.

Nor are electricity bill spikes off the agenda.

Draft regulated retail prices for power in New South Wales and Queensland, home to half the country’s residential users, are due in February (to be finalised in May) – and may be around 10 per cent higher in Queensland, according to industry sources, even if they flat-line south of the Tweed.

A lot lower than 22 per cent in Queensland last time round, but not a price cut.

In December 2012 Gillard played with a draft Productivity Commission report to promise householders an electricity bill saving of $250 a year from 2014.

She chose not to comment when the commission’s final report appeared in April – in which it pointed out that, “if carefully implemented,” the introduction of critical peak pricing and the rollout of smart meters could produce savings of around $100 to $200 per household per year by reducing the need for further expensive network capital outlays to meet demand.

Not in 2014 though.

Gillard’s gone from office, but the malady she so fervently promised to remedy is no less a problem today than it was a year ago – and the tariff and meter remedies are still debating points between and within the CoAG jurisdictions.

Households, small businesses and energy-intensive industries still find the energy bills a source of pressure and pain.

Abbott hopes to reduce the hurt by abolishing the carbon tax regime, but this still leaves the network costs issue, making up half the end-user bill, and the ongoing impacts of the renewable energy target and the majority of householders copping the costs of Labor’s rooftop solar schemes.

The nub of the problem, in say New South Wales, is that power bills that were about $1,100 annually for households when Kevin Rudd swept in to office are now around $2,300. For homes using gas, those bills are 60 per cent higher than in 2007.

Pollie-speak is no balm for this sting. The fixes are all at the edges and require years for implementation.

With the experience of Victoria in mind, how long will it be before “smart meters” are standard in homes in New South Wales, Queensland, South Australia and Tasmania, let alone that strange land west of the Nullabor?

The Productivity Commission began its report in the Gillard hey-day by observing that “Average electricity prices (on the east coast) rose by 70 per cent in real (ie inflation-adjusted) terms from June 2007 to December 2012.” 

The cost rises imposed from July this year have pushed this marker higher.

They have also pushed up the dividends and taxes being paid by taxpayer-owned networks to the governments in Sydney and Brisbane.

The Newman government dismissed a media attempt to hype the latest record income numbers by pointing to record payments to power consumers outside the south-east corner to keep state tariffs uniform.

The O’Farrell government has slurped down income almost 60 per cent above that reaped by the Keneally regime (which imposed the present system) for the past financial year and somehow evaded much comment – which a year ago was being led by Gillard in a full-throttle attack on state government greed (ignoring that Labor had parented the arrangement).

The next big yelling match in both states over networks may come in 12-18 months when O’Farrell and Newman seek to cash in to the tune of about $70 billion on privatisation of the network assets, a much-needed budget injection, a source of hysteria for the trade union movement and an unpopular step with voters on past experience.

Assuming Abbott has had his way with the carbon price by 2015, the power bills will not have drifted down very far – and the reforms mooted by the Productivity Commission will be where?

Throw in the impending gas price spike and the voter heat over utility costs on the east coast, which is where 90 per cent of them live, is unlikely to have turned down.

Ultimately the issue is national, i.e. federal, in political terms.

By the time of the 2016 federal election Abbott may be ransacking the renovated Lodge for Gillard’s big stick in order to drive the state sheep – unless he can emerge from the tardy CoAG process in the year ahead with a timetable for actually implementing network reform.

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