Up and down the power price merry-go-round

Behind the politics and the media brouhaha about power and gas prices lies the spadework by energy bureaucrats trying to understand what comes next in a period of unprecedented concern.

The lead role in this for governments around the country falls to the Australian Energy Market Commission, which reports to the Council of Australian Governments.

For Mr, Ms or Mrs J.Householder and Mr, Ms or Mrs S. Businessperson, the workings of the AEMC are a black box and they will learn precious little about it from the evening news bulletin on TV or the reports in the tabloid or compact newspapers.

Given the pressures on politicians, I have my doubts that one in 10 of them actually reads the careful prose contained in scores (and sometimes hundreds) of pages of AEMC reports – that’s left to the advisers and more bureaucrats in federal, state and territory departments.

What’s more, it is in the nature of government that four or five ministers, starting with the first ministers and treasurers, with relevant responsibilities will each be getting their own interpretations of what is being said.

Every once in a while, the political/bureaucratic merry-go-round loses its way sufficiently for something big and bad to bite the aforesaid J.Householder and S.Businessperson.

Two large examples of our times are the way governments lost track at the start of the large price increases flowing from network infrastructure investments of the impact this would have on consumers/voters as well as the present slow-boiling debacle in New South Wales over gas supply and cost.

The prospects for the latter were publicly acknowledged by the Premier of New South Wales, one Robert Carr, in an energy “green paper” in December 2005.  But it has taken until now, when a crisis is on the state doorstep, for the scale of the problem to hit home to consumers, especially business users.

Back to the AEMC: under the title “Strategic priorities for energy market development 2013,” the commission is out and about at present seeking input for a review that is trying to suss out where energy demand is going, what this means for investment and how the complex web of the electricity and gas supply chains should be managed down this decade.

Led by John Pierce, who has been a senior public servant in the federal and New South Wales governments and was the chief economic adviser of the NSW generation and transmission business when it was one big utility two decades ago, the AEMC does not rush about waving its hands in the air.

The organisation is highly regarded by the energy business community and respected by the resources and energy ministers to whom it reports through the CoAG process.

It steps carefully and chooses it words carefully.

So it takes until page 19 of the “strategic priorities” report to find the political dynamite: a sentence pointing out that the recent commission review of electricity price trends over the next three financial years expects bills to continue to rise by three per cent a year, having increased by 14 per cent between 2011-12 and 2012-13 (and by 50 per cent since the middle of the past decade.)

That’s not what J. Householder and S. Businessperson want to hear.

Up? They were told in December by no less than the Prime Minister that they could look forward to a $250 per account fall in annual costs from next year.

Of course, J.Householder and S.Businessperson are still not hearing the reverse message because none of the mainstream media are reporting this, the Prime Minister has no interest in commenting on it and the Coalition state governments, who might give her curry, have no wish to draw attention to a problem for which voters will hold them to account, too.

The other notable feature of the new AEMC discussion paper, which comes as no news to the producers and suppliers of energy living the bad dream, is just how uncertain the electricity and gas environments have become.

The red line running through this aspect of the AEMC’s commentary is the need for politicians to focus on the long-term interests of consumers rather than letting their knees jerk in response to shrieking headlines and ululating interest groups.

Pierce, in his introduction to the discussion paper, sums the situation up like this: “There is uncertainty around what the technology mix for generation will be, the impact of embedded generation on large-scale generation and transmission investment, the levels of future demand, the type of energy services consumers may buy from retailers and other providers and the structure of the industry, including the extent to which there will be further vertical integration of retailers and generators.”

Pierce sums up the AEMC message to all stakeholders like this: “The nature of investment (needed to secure efficiently-priced, safe and reliable electricity) is inherently uncertain so it is important that market arrangements facilitate options to best meet requirements without creating barriers or distortions.”

Put baldly, he is telling politicians and those vying for their attention and their largesse that it is only too easy to stuff up the energy supply chain for short-term gain and this will make sorting it out down the track even harder than it already is.

Or as the discussion paper puts it, “a significant challenge will be attracting the most efficient investments to minimise the costs for consumers.”

Your focus, dear J. Householder and S. Businessperson, should be on “minimise” and not on “cut.” 

And on how far you can go to help yourselves by being more efficient users.