The Guardian 6 July, 2005

Electricity meters for price caps — fair swap?

Bob Briton

Change is in the air. There’s movement at the power station. Last week the national electricity market got a brand new Australian Energy Regulator to match its brand new Australian Energy Markets Commission.


The latter body will have the job of investigating the framework that other energy industry regulators operate within. But all the talk among the bureaucrats and industry bigwigs is about deregulation; in particular how to remove the price caps that currently exist on the supply of electricity to households.

One solution supported by a Commissioner of the Australian Competition and Consumer Com­mission (ACCC) — one of the presumed consumer "watch-dogs" — is to remove the caps and install electricity "smart meters" instead, so that consumers can monitor and choose when to use some (hopefully) cheaper electricity. What? Wait until 2 am or 3 am to turn the lights on, cook a meal, do the ironing or heat the living room.

ACCC Commissioner Ed Willett made the comments last week and was reinforcing calls from corporate interests in the $110 billion energy sector. "The industry is strongly supportive of the need to remove price controls in electricity and gas," Brad Page, CEO of the Energy Supply Association of Australia, told The Australian Financial Review (AFR). "Such an outcome would enable retailers to offer more innovative products to the market." The AFR has been running a series of articles sympathetic to the industry demand for no-holds-barred electricity pricing.

The "product" referred to in the case of electricity is actually reliable, reasonably priced energy — something the interconnected, largely privatised electricity network on the east coast has demonstrably failed to deliver to households. The line being pushed by industry is that, if private power generation and distribution operating in a market with some restraints on charges has not resulted in cheap dependable power, then uncontrolled pricing will. And Industry Minister Ian MacFarlane — boss of the Australian Energy Regulator and the Australian Energy Markets Commission — agrees with them.

However, the argument that corporate interests coincide with the householders’ need for electricity at less financially crippling rates is plainly disingenuous. One of the arguments being used to remove price caps is that demand will soon run ahead of electricity supply requiring greater investment in infrastructure. Business sources point out that households currently consume between 40 and 50 per cent of the electricity available within the national electricity market.

To maintain or increase profits (energy sector players are always crying poor), the solution in the short-term is clearly to damp down household use by ramping up prices. The result: less "product" delivered with the same or better profits from this essential service.

"Given the significant demand growth and forecast shortages of supply that have been projected for the NEM [National Electricity Market] over the next decade or so, it is a good time for governments to assess the need for retail price caps", as the ACCC commissioner put it. Everybody knows you do not remove a price cap in order to bring the price down.

Of course, the work of reassuring the public about its dismembered electricity utilities goes on. Steve Edwell, the chair of the new Australian Energy Regulator, has said his organisation "will be looking at the market every day and looking for aberrant behaviour. I’m not suggesting we’ll be heavy-handed here, but the success of the market will depend on … compliance." New powers — including search warrants to be issued by magistrates in cases where breaches of shrinking codes of practice are suspected — are doubtless as much to do with public scepticism at the effectiveness of the invisible hand of the market as with any new enthusiasm for policing corporate electricity interests.

In Western Australia — which is still outside the Byzantine workings of the national electricity market — play is at a different stage. There the state-owned utility, with the private enterprise-sounding name Western Power, still has 60 per cent of the state’s electricity generating capacity. The latest move set to be pulled off by the Gallop government is to divide the utility into four separate units: generation, a retail corporation, a networks corporation and regional power delivery.

The government has pledged that there will be no price increases within the life of the current parliament. Premier Geoff Gallop and Energy Minister Alan Carpentar recently got the go ahead from opposition leader Matt Birney to make the changes. Mr Birney gave the green light on condition that the government introduces a price cap to protect householders (state oppositions appear to take on the role of electricity consumer’s friend no matter how unbelievable their credentials).

Mr Carpentar is keen to reassure voters that the changes are strictly to do with efficient service delivery: "The network’s corporation will be a state owned monopoly business and needs the rigour of good business practice." However, a degree in rocket science is not needed to predict that one, then another and finally all WA’s smaller electricity corporations will be privatised to meet some financial crisis or another, leaving only the pesky price caps in the way of "good business practice" as is now allegedly the case in the national electricity market.

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