The tricky business of electricity tariffs

Proposed changes to the network tariff system could see lower charges for consumers. Now we just need politicians to act in the long-term interests of the electorate.

The most basic rule of energy supply, whether it is electricity or gas, is that someone has to pay. Most of the argument is about who this someone should be.

For some governments, the easiest answer is just to smear the costs across all consumers or taxpayers.

In Queensland, for example, politics dictate that the government-owned businesses collectively need to deliver at least $600 million a year in dividends to enable consumers in the state’s huge rural and regional areas to pay no more for power than those in the populous south-east corner.

When Anna Bligh’s Labor government wanted to make political waves with a big, generous solar power promotional scheme, the answer to ‘who pays?’ was simple: smear the “solar bonus” bills across all Queensland consumers who don’t take up PVs.

Over in the west, successive Labor governments simply froze tariffs for the best part of a decade. This eventually left the West Australian taxpayers to bear a multi-billion dollar burden and the Coalition Barnett government to wear the political odium of shoving power bills up 80 per cent in the past five years. This was still not enough to reflect the real cost of delivering electricity to the south-west corner of the state.

In environments like this, mendacity is common on both sides of the debate. In the current RET row, boosters are very eager to play the line that the cost of supporting wind and solar power represents a really small burden on households (about 4 per cent of the annual cost), while not engaging with the fact that the weight falls more heavily on miners and manufacturers -- who are big polluters or key employers depending on your ideological bent --and especially so on those who are competing in global marketplaces.

The overall electricity scene is a huge, tangled web of issues that fly over the heads of most Australians: stranded generation and network kit in an environment of sliding demand reacting to soaring prices; the RET wrangle; the solar set’s fight to retain what subsidies have given them; privatisation pros and cons; the costs and benefits of abatement programs (the central theme of the Warburton panel report); and a lot more. Creeping up on the majority of us is the basic question of how and what we should be charged for our use of the electricity delivery system.

The agent for this task is the Australian Energy Market Commission. It has a draft proposal for new network pricing up for public discussion.

Trying to touch a chord with what Paul Howes calls the “sensible middle” of Australians, the AEMC is pursuing a theme that “the way we pay for power has to keep pace with our modern lifestyle”.

Behind this lies the rule-makers’ belief that, if the network tariff system (which is 50 per cent of end-user bills) can be rejigged so that prices reflect how much it costs to use appliances at various times, consumers will make ‘more informed’ decisions about consumption.

The carrot is lower charges for those of us who respond by moving power use away from peak periods with the promise of a smaller network burden than it would otherwise be somewhere down the track.

The aspect that will touch the most Australians relates to air-conditioning. We are heading towards having about 12 million of the devices in use nationally by the decade’s end.

A consumer using a big 5kW cooler in peak periods causes about a grand’s worth of network costs. Mr Cool pays only $300 of this; the remainder is recovered from everyone else through higher charges.

The AEMC claims that 81 per cent of us are going to be winners if the tariff changes it proposes are implemented. The other side of this coin is that one in five of us is going to be a ‘non-winner’ in a society where those facing a loss of privilege can make a huge fuss in the hope that politicians will take fright.

The good news is that this is not an issue that will go anywhere near the Senate. It’s one for collective government decision-making through CoAG.

The bad news is the CoAG process is what the Productivity Commission has politely described as “tardy” and others equate to watching grass growing.

Eventually the proposals will percolate up to the CoAG ministerial energy council. What happens will depend on whether politicians are prepared to make timely decisions in the long-term interests of the vast majority of consumers rather than act in their own short-term interests at the polls.

Keith Orchison, director of consultancy Coolibah Pty Ltd, publisher of the This is Power blog and editor of OnPower newsletter, was chief executive of two national energy associations from 1980 to 2003. He was made a member of the Order of Australia in 2004 for services to the energy industry.

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