Power games won't help Gillard

As a complex inquiry into energy reform nears its close, the big stick Julia Gillard is waving threatens to destroy the state co-operation needed for real reform.

If she cares to look, there is almost nowhere that Prime Minister Julia 'Big Stick' Gillard can turn without finding evidence of how her own side of politics is much to blame for the electricity problems against which she threw the weight of her office this week.

She can start in 2004 when the energy ministers’ committee of the Council of Australian Governments decided that the first efforts to regulate the power sector, set up in the mid-1990s, were not working properly because they had led to chronic underspending on the delivery system.

The ministers – one from the Howard government and eight from states and territories run by Labor – eventually agreed on the current regulatory regime, which has sanctioned massive spending and drawn complaints of network 'gold-plating', a charge the suppliers reject vehemently.

Yes, prime minister, this is the process you attacked so fulsomely on Tuesday – and leading the pack of premiers who approved the changes was the man now at your elbow, Foreign Minister Bob Carr.

Having decided to give the Coalition NSW government, in office since March 2011, star billing in her power hall of ill-fame, the prime minister also now has to face the fact that the system of state-owned networks tax and dividend payments she considers so awful were set up by the Keneally government when it already knew about the regulatory approval for $17 billion worth of capital spending in its 'poles and wires' domain.

Yes, prime minister, your party planned and implemented a $700 million a year increase in government earnings at the expense of NSW 'working families' against which you railed on Tuesday – and it oversaw the network bids for record capital outlays.

And, when faced five years ago with a proposal to roll out smart meters across the east coast to deal with the worsening problem of peak power demand, which Gillard rightly identified on Tuesday as a major issue now requiring urgent attention, just one Labor government – Victoria's – was willing to embrace the innovation.

The Labor regimes in South Australia, New South Wales, Tasmania and Queensland wouldn’t have a bar of prompt action. And then the Victorian government botched its ground-breaking rollout, angering its voters to such an extent that all the other administrations are still in denial today.

Under these circumstances, the prime minister more resembles the bloke who is said to define chutzpah (having murdered his parents, he threw himself on the mercy of the court as an orphan) than a fearless crusader for the interests of the common householder.

But while she shouldn’t be allowed to get away with any of this, the bigger issue by far is what is actually going to be done to address the price problems.

How will the stronger powers for the Australian Energy Regulator she is threatening to impose resolve the ongoing peak power spikes?

Indeed, how will Gillard actually wield the 'big stick' she is waving when the legislation under which the AER and the market regime operates is national, not federal, and requires acceptance by all the other jurisdictions?

As it happens, the Coalition premiers should have an equal interest in tightening the rules under which network capex bids are judged and in an approach to capital borrowing conditions that is less generous than today.

Under the aegis of the CoAG energy ministers committee, the rulemaker, the Australian Energy Market Commission, is nearing the end of a complex and wide-ranging inquiry in to reform of the process – and all the state and territory first ministers joined with Gillard less than a month ago to say that they would like the decisions asap.

This is another reason why Gillard's grandstanding this week is so egregious – and why it carries a risk that, teed off at her behaviour, the Coalition premiers may be tempted to at least delay their approval for whatever the AEMC recommends.

Perhaps, in this sinkhole in to which national politics has fallen since the last federal election, Gillard is playing a devious game to present herself as the champion of the oppressed householders and to tempt the Coalition leaders into cutting off their noses to spite their faces to her advantage in an election year.

Far-fetched? Look back on the political landscape since 2010 and think again.

What represents the real national interest in all this?

First, to have a set of regulatory rules put in place that will address the full energy environment and not need to be rewritten yet again by 2020 or earlier.

Second, to fully understand the affordability problems created by a necessarily more expensive energy and how to properly use the welfare system to help those who really are in strife – not by distorting the energy market.

Third, to act to ward off east coast peak load soaring from where it is today to a much higher level.

What that may be in 2020 is open to debate.

Only in December 2011, consultants told the AEMC that peak demand could rise from 38,000 MW then to more than 50,000 MW at the end of the decade.

They forecast another two million air-conditioners would be bought by householders this decade, dragging their market penetration to well above the 70 per cent it is today.

Now the agency that provides investment planning for the market, the Australian Energy Market Operator, in a new report issued this week, says it expects summer 2013-14 demand to peak at 39,470 MW and to be pushing towards 45,000 MW by 2020-21 when the current state of consumption, the economic outlook and other factors are taken in to account.

Even this substantially smaller growth outlook presents pressure for more infrastructure spending and higher network charges. And what if we go in to another period of drought, high heat and humidity?

The widespread rollout of smart meters and ToU tariffs is agreed by experts as the way to go – but it will not be popular. It will involve a multi-billion dollar capital expense and householders will be both charged for the process and required to substantially change their consumption habits.

That's why on this one, the prime minister is leading from behind, as she made clear on Tuesday when, at question time, she declined an invitation from me to state her intention to drive state governments hard and fast down this path.

It is no less important, of course, for prime minister-in-waiting Tony Abbott to say how he views the peak demand issue.

His intent on carbon pricing is clear, and obviously welcomed by a large number of voters, but no matter how much ranting the Coalition side produces, the tax is not the be-all and end-all of addressing power bill pressures.

This is a case where sauce for the goose is definitely sauce for the gander.

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.