Stumbling towards power supply reform

After a fortnight of political rhetoric on electricity supply, three important things stand out.
The first is that prime minister Julia Gillard has opened a window on New South Wales shenanigans that she will find hard to shut and mostly will not work to her advantage, I suspect.

The second is the reinvigoration of the debate about privatising the taxpayer-owned power networks in four states (NSW, Queensland, Tasmania and Western Australia), representing between them more than $60 billion worth of assets.

The third is the need to amend the rules regulating power supply delivery and to find a way to continue to provide energy security without pain of really high price rises.

After a slow start, NSW's Barry O'Farrell government is beginning to drive home a key point about Gillard's assault on it: the current dividends the four network businesses pay state treasury are a Labor plan ameliorated by cuts since the change of regime last year.

I don't understand why it took O'Farrell and Treasurer Mike Baird so long to make this point. They had all the information ready to hand.

The Keneally government decided to take advantage of the very large state network capex program and its accompanying higher charges by jacking up the dividend stream from $726 million in 2008-09 to $1.88 billion in 2012-13 (if it retained office).

It recast this outlook in its last budget to grab $903 million in 2011-12 rising to $1.14 billion in 2012-13.

As it turned out, the dividend stream for 2011-12 came in at $820 million and Baird expects it to be $999 million this financial year after his government put a lid on payments.

In what has to be the lamest excuse since the dog ate the homework, Labor's state energy spokesman, Luke Foley, offers that the Keneally government's plans were "forward estimates which were rubbery at best” before returning to the "billion dollar grab” argument.

O'Farrell, says Foley, should have frozen the dividend at $638 million, its 2010-11 level.

This enabled the Sunday Telegraph, true to form, to headline its story "NSW Premier Barry O'Farrell's rip-off a $1 billion broken promise”.

To which Baird responds that the money is going to fund schools, hospitals, transport and police.

He calls the Labor attack "misleading and false,” opening the door to his federal colleagues to assault Gillard's credibility yet again in parliament.

In addition, the prime minister's comparisons last Tuesday of government-owned network performance with the private sector have been reinforced by the NSW commission of audit, chaired by David Gonski, leaving her, no matter how unwillingly, as a witness for the prosecution on privatisation.

Rather surprisingly, the mainstream media have missed the audit's claim that the NSW electricity network operating expenditure and capex outlays could be improved by 5 to 10 per cent through greater efficiency.

The report says: "There is evidence that the privatisation of electricity assets will cause downward pressure on prices through the creation of a competitive and efficient market on a fully commercial footing.”

This is what Federal Resources and Energy Minister Martin Ferguson argued in a speech in Perth on Friday – similar one imagines to the talk he would have given last Tuesday in Sydney if Gillard had not elbowed him out of the way.

It is a view supported by the ACCC chairman, Rod Sims, who says: "The incentives of government shareholders are unavoidably mixed and complicated by multiple and disparate objectives.

"It is difficult to know what the outcomes would have been in private hands in recent years, but perhaps clearer, more commercially disciplined governance and internal expenditure review processes would have assisted in preventing some of the significant price increases.”

How now, prime minister?

Finally, the upside of Gillard's pugnacious approach last Tuesday is that there is greater pressure on the east coast electricity rule-maker, the Australian Energy Market Commission, to come up with an improved framework for network oversight before the end of this year – enabling the Australian Energy Regulator to tackle the next tranche of capex determination (to be made in 2013 to cover 2014-15 to 2018-19) with a better toolbix.

This, as Ferguson made clear in his Perth talk, is an expedited process that is already under way, something Gillard knew from the July 25 COAG meeting she chaired in Canberra.

What the rule changes can't deliver is a cut in electricity prices before the next federal election.

The current capex determinations run to 2013-14 plus the carbon tax and other green imposts at state and federal levels will continue to drive up power bills.

Both Julia Gillard and Tony Abbott, for differing reasons, will dislike the idea of taking up Christine Milne's proposal for a Senate inquiry into energy supply.

In fact, it is a good idea and should be supported – not least because, if the stakeholders do a proper job, it will bring home a more realistic picture of power supply and power prices in the election year.

If Milne puts it forward as parliament resumes, in the public interest both leaders should support it.

O'Farrell and Baird, for two, should enjoy making a submission describing what they have inherited.

And, by the way, I find it very curious that the media outfit has been so quiet on the opening paragraph of the Gonski committee of audit.

This is what it says: "NSW is at a turning point. For many years financial management has been confusing, lacking in transparency and below the standards expected of efficient and effective government.”

What an indictment of Labor's 16 years in charge of Australia's largest regional economy – and not least in the management of energy policy.

It adds to the impression that Julia Gillard was on an especially rickety soapbox last week.

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.