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Shock treatment - what our electricity companies need

Alan Kirkland

by Alan Kirkland

07 Dec 05:35am

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Filed under: Bills, Electricity Reform, Julia Gillard, Politics, Power Prices

40 comments

If household bills went up by more than 50 per cent in five years in any other market, governments would be clamouring to fix the problem. But in the electricity sector, the pace of change is glacial.

BZZZT! Take that, government

Electricity bills are the issue that is dominating our conversations, from the bus stop to the boardroom table. They are the number one cost-of-living concern for Australians, ahead of mortgages, rent and groceries.

The debate about how to fix this problem has, however, become bogged down in countless reviews, reports and committees.

And nobody could be happier with this situation than the electricity sector - much of which is profiting from this regulatory inertia.

That is why today’s Council of Australian Governments meeting is so important. It is a rare window for change, coming at the end of several months of the most transparent debate about electricity pricing that we have ever seen.

Terms like “poles and wires”, “peak load” and “gold plating” have emerged from the black box of market economists and engineers and been thrust awkwardly into the political spotlight.

While we’d be foolish to underestimate the ability of COAG to turn a sensible policy debate into a partisan slanging match, the pressure for reform is irresistible.

Everyone from consumer groups to industry bodies, and regulators to the Productivity Commission, has joined the calls to overhaul what is clearly a broken system. On Tuesday, we asked Australians to email the Prime Minister and Premiers ahead of COAG, within 48 hours, more than 5,000 had taken up the invitation.

We should not have a situation where 25 per cent of our household bills fund infrastructure that we only need for about 40 hours of peak demand every year; where consumers are harassed by discount offers but tell us they lack the information they need to feel confident about changing providers.

As for solutions, what is on the table at COAG is far from perfect - but in a system that is so resistant to change, it is a big deal.

Some of the reforms proposed by the Australian Government would ensure greater scrutiny of the infrastructure spending that has been a major driver of price rises.

The proposal to reward large energy users for reducing demand at peak times should lower prices for everyone. And providing funding for consumer advocates to take on the might of the energy industry in the regulatory process, should help to stop us getting in the same situation again.

Smart meters may also have a useful role to play - but only if we learn from the lessons of the poorly handled roll-out across Victoria and ensure that they are supported by a robust consumer protection framework.

The ultimate test of what comes out of COAG will be whether both levels of government can put aside their partisan interests and deliver reforms that ensure we won’t see our bills go up another 50 per cent in the next five years.

Anything less than that will be a cop out.

Alan Kirkland is the CEO of consumer group CHOICE.

Comments on this post close at 8pm AEST.

Most commented

40 comments

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    • Super D says:

      04:50am | 07/12/12

      The best example of gold plating to handle peak demand has nothing to do with electricity. It’s actually the TAB providers. Over 90% of their IT capacity is only utilized between 10am and 3pm on Melbourne cup day. Just as we expect to be able to put a bet in the cup on cup day we expect to be able to run our air conditioners on the hottest days. This is not going to change. It’s up to the network companies to meet this demand as effectively as they can.

      Reply

    • Tim says:

      08:00am | 07/12/12

      “we expect to be able to run our air conditioners on the hottest days. This is not going to change. It’s up to the network companies to meet this demand as effectively as they can. “

      That’s fine,

      People should be able to use their appliances whenever they want, but they should be paying the true cost of delivering them that power.

      Why should everyone else have to subsidise usage so a minority of people can use their air conditioners and high energy appliances whenver they want?

      User pays, so we need to roll out smart meters and force people to have variable electricity pricing.

    • Colin D says:

      08:04am | 07/12/12

      Super D: A lot can be done to lower costs without risking use of air conditioners on hottest days. The U.S. uses “DemandSMART” to pay big users to save power in extreme peak periods. Network charges per kWh can be lowered by ADDING demand to off-peak periods. (This increases capital utilisation.) For example, large air conditioners can be retrofitted so they use off-peak power. This is done around the world with “Phase Change Materials”, freezing a liquid overnight with off-peak electricity.

    • Art Martin says:

      09:27am | 07/12/12

      Even minor changes could make a big difference to peak demand.

      I’d like to see some changes like SMS’s to customers when peak demand is getting close, with incentives to switch off. I’d much prefer a carrot than a stick approach. Although granted there is value in both

    • SnappyLegs says:

      11:01am | 07/12/12

      According to a document entitled ‘Overview of Smart Grid Program & Trials’ uploaded onto the internet by Ausgrid and dated August 2011, there are already significant plans for creating a smart grid network all over Australia, to be fully operational by 2020. It states that Ausgrid want control over over your telecommunications networks, your transport networks and power networks using smart grid systems. This of course requires a whole new network, which of course costs money. This is why your bills are soaring.

      http://www.smartgridsmartcity.com.au/~/media/Microsites/SGSC/Files/Presentations/Overview of Smart Grid Program and Trials.pdf

    • El-Viejo says:

      11:22am | 07/12/12

      “User pays, so we need to roll out smart meters and force people to have variable electricity pricing.”

      What I find absolutely fascinating is the number of people crawling out of the woodwork with their talk of forcing other people to conform to their point of view.  In other words - “we will make air conditioning unaffordable when you most need it,  we will rub your noses in it, and what are you going to do about it?”. Fine. Provided all air conditioning plants are permanently removed from all State and Federal Government office buildings. What’s good for the goose, is good for the gander.

    • Tim says:

      12:57pm | 07/12/12

      El Viejo,

      What I find fascinating is the amount of people that think I should subsidise their electricity use because they want to be able to use as much power as they want, whenever they want.

      How about you pay for your own damn air conditioning?

      And where did I say governments should be exempt from paying these fees?

    • El-Viejo says:

      02:36pm | 07/12/12

      Tim: “And where did I say governments should be exempt from paying these fees?”
      Has it perhaps occurred to you that any additional State and federal Governments expenses of running their own office air-conditioning plants full blast in peak time will be promptly recovered from you, the mug taxpayer ? That’s why I propose (slightly tongue in cheek) the permanent removal of all airconditioning equipment from the ivory towers inhabited by people who blissfully plan for a six to ten-fold increase of peak electricity price charged to others,  without ever personally facing the consequences

      If you’d rather continue to joyfully subsidise peak time AC for the Government workers, as it becomes unaffordable for little old ladies on really hot days, be my guest.

    • Tim says:

      03:31pm | 07/12/12

      El Viejo,
      Air conditioning for offices is simply a running cost for the business, be it private or public. It enables workers to be productive. Hence it would seem to be a worthwhile use of money but it would be up to the individual business/office to determine the most effective use of their budgets.

      Subsidising private citizens so they can keep their house at 20 degrees all summer is not a good use of money particularly not when its mostly poorer people subsidising the well off.

      Access to air conditioning is not a necessity of life, no matter how much you talk about poor little old ladies suffering in the heat.

    • acotrel says:

      05:11am | 07/12/12

      Surely privatisation of public utilities and transferring ownership to foreigners hasn’t cost us more than the ‘carbon tax’ ever will ? Who would have thought the freemarket and globalisation ideology has a flaw in it ? Are Tony Abbott’s mates exploiting us ?

      Reply

    • Borderer says:

      09:14am | 07/12/12

      In Qld they would be Peter Beattie’s mates, the ALP pushed that particular barrow.

    • Brian B says:

      02:08pm | 07/12/12

      Acotrel - Pray tell the link between Tony Abbott and the rest of your post.

    • acotrel says:

      05:37am | 07/12/12

      If our privatised energy systems are based on the ‘user pays’ principle, why is it that the service charges are such a large flat rate for the small consumer, and not proportional to the amount of energy used ?

      Reply

    • Gregg says:

      05:54am | 07/12/12

      Alan, you do really need to know a hell of a lot more about the electricity industry.

      For starters there is already a national regulation process in place when it comes to which power stations contribute to load requirements and that is managed on a bidding system where the lower cost generation is selected first.

      What has been happening for about two decades is that no new base load power stations are coming on line and Choice could well do to ask why that has been the choice and especially why seeing as our power demands keep going up and up with increasing population and the love of things like air conditioners which are particularly part of that peak load.

      How is the government meeting that?
      A lot of localised gas turbine plants being installed, just another addition to electricity costs as it is more expensive than coal fired electricity.
      And then of course there will be additional infrastructure required for those and the plethora of renewable power installations, meanwhile the plethora of home solar power buy back deals adding a huge cost to power and it will increase as more and more are installed.

      That is poles and wires reality and gold plating is just political BS from a PM who would know about zero about the system.

      If COAG can get the message out that something like some new base load power stations ought to be in the pipeline that will be one good thing they will have achieved.

      ” We should not have a situation where 25 per cent of our household bills fund infrastructure that we only need for about 40 hours of peak demand every year; where consumers are harassed by discount offers but tell us they lack the information they need to feel confident about changing providers. “
      And why not? for be it power stations, transmission lines or substations, it is all required and do look in to just how many additional substations and transmission lines are required for solar and wind farms! and you might just be more than a tad surprised.

      ” The proposal to reward large energy users for reducing demand at peak times should lower prices for everyone. And providing funding for consumer advocates to take on the might of the energy industry in the regulatory process, should help to stop us getting in the same situation again. “
      This is all pretty funny really for it is our larger electricity users like Aluminium Smelters going 24/7 that actually help support base load stations constant running which they need to do for efficiences of operation and also to avoid additional maintenance problems for unlike a car they do not take so well to putting the foot down for a bit more power and meanwhile you’ll likely find the big users are on a special deal.
      The proposers just do not understand the system it would seem and heaven help us if they get in control.

      ” Smart meters may also have a useful role to play “
      Oh yeah and let you in on a little secret! - those smart meters will come in extra handy when power restrictions come in and the distribution companies can just control whether you have power or not!

      Reply

    • acotrel says:

      06:52am | 07/12/12

      So why the dramatic increase in charge?  Is this like a lot of privatised areas which were formerly public owned.  Where the assets are exploited to the maximum to make short term profits.  When the rationalisation the aircraft industry in Victoria was proposed, it was found that the plant in the private company had originally been supplied ‘in aid’  by the government and then worked to death without maintenance. Who is supposed to pick up the tab for the exploitation ?

    • Tim says:

      08:07am | 07/12/12

      Gregg,
      I agree with a lot of your comment but the bit about smart meters is just scare mongering.
      I’d pity the government who ever tried to cut people off the grid, They wouldn’t last the outrage.

      People need to pay for the true cost of their power production, we won’t necessarily need power restrictions, we simply need to charge people the real cost of using their power during those peak periods.

      I’m sure a few massive bills would quickly show people that having your house fully climate controlled at 20deg all summer might not be the best use of their cash.

    • maria says:

      10:55am | 07/12/12

      @ acotrel says:
      so why the dramatic increase in charge?

      In a mafiacracy it is the mob who decides like it or not full stop.

    • Gregg says:

      01:35pm | 07/12/12

      @acotrel
      ” So why the dramatic increase in charge? “
      Do you ever really read posts mate!
      I gave a number of reasons
      1, Higher alternative power cost
      2. Renewable schemes
      3. All the additional transmission lines and substations for renewables.
      4. The power buy back of home solar installations

      And all that is on top of ordinary increased costs of operating and maintaining plants, that type of cost going into supply prices bid.

      Some power stations and other infrastructure has been privatised but as far as the power stations go, they still have to put in their supply bids and then seeing as governments/public got some loot for selling off stuff, yep obviously a private company will be seeking a return on their investment and you would need to weight that up against what it would have been costing a state to run it.

      @Tim
      ” I agree with a lot of your comment but the bit about smart meters is just scare mongering. “
      You just wait until supply cannot keep up with demand Tim and cutting off users under control is far better than having an uncontrolled voltage drop right across broader areas for you not only can have user equipment damage by what are called brown outs but you can also damage network infrastructure and start a cascading total loss.

      Maybe you’re not old enough to remember back to the fifties and sixties when there were more regular power outages.
      It will be coming again soon enough without a few major new power stations to be built.

      Hazelwood PS in Victoria for instance, the one Julia said she would close down is about fifty years old already and power station life is not just confined to the PS itself wear and tear, but they are usually built adjacent to a coal field and so the longer a station runs for, the further the coal face gets from the PS and thus you can get more coal supply reliability issues.
      Hazelwood flat chat provides about 1600 MW and you drop that out of the system and what do you replace it with.

      Yallourn W adjacent to the Latrobe River has extended its coal field so far and so close to the Morwell river that the river bed has collapsed into the open cut and that can not only affect coal supplies but would also threaten the PS water supply as well as that for Loy Yang as it also gets water pumped to storage dams from the river.

      Collectively, those three power stations provide a good 80% - 90% of Victorias power and re-instating the river and flow is going to be no quick fix.

    • Tim says:

      01:58pm | 07/12/12

      Gregg,
      I don’t think you’ll need to drop users if you price the power and control the meters accordingly. People should be smart enough to limit themselves during peak periods once they see what it costs.

      Although I would agree that people have become complacent about their electricity supply.

      You can have reliable supply or cheap supply but not both.

    • Steve says:

      06:02am | 07/12/12

      Demand management.

      It solves so many problems associated with the need for that extra capacity to a) generate and b) transmit electricity for those few hours a year.

      Everyone wants air-conditioning but no-one wants to pay for the costs to enable it to run (i.e. peak load generators and ‘gold-plated’ networks. Smart metering is the way, it will have it’s hiccups but in 20 years you can’t tell me that it won’t be used. We will (surely) be smarter at that time.

      Reply

    • Kipling says:

      06:04am | 07/12/12

      The nsw govt. Has demonstrated its commitment to keeping prices down by forcing power companies to print government propaganda on their bills. That comes at a cost and that cost is carried by the electorate.

      Reply

    • Jaqui says:

      04:19pm | 07/12/12

      You mean the propaganda that says how much carbon was created through your energy usage or the propaganda sheet added in with the bill?

    • Achmed says:

      06:34am | 07/12/12

      No doubt we will get the usual parade of ranters teling us that the carbon “tax” is the only factor that has increased electricity bills.  The fact that prices were increased by around 60% (WA) in the 3 years preceding the introduction of the CT were not a problem at all and will be ignored.
      The fact that companies have known since at least 2005 when Howard proposed an ETS that some type of carbon reduction plan would be legislated and they showed no corporate-community responsibility and sat on their hands doing nothing.  The fact that costs have increased so greatly not because of the increasing costs of power generation but because the now privately owned power companies have been more concerned about profits and bonuses for their CEO and board that they have failed to properly maintain the poles and wires .
      The fact that the CT has had less effect on prices than the GST will be ignored as the ranters go on their “get rid of the Govt - get rid of the CT” rants, ignoring the $3.2 billion unfunded carbon plan that has been promised by Abbott.
      No doubt PJ aka Tony Abbott will dominate the rants

      Reply

    • Borderer says:

      09:41am | 07/12/12

      Achmed
      Actually the carbon tax added about 15% to the price of bills, an unwelcome increase on top of other increases. So compared to a 10%, it has had a bigger impact.
      The solar rebate also drove the underlying increase. People shifted to solar power, means less users picking up the cost of infrastructure so prices go up per unit. This of course make more people move to solar, even less users to carry the infrastructure cost so the price goes up again and so on. The move to fixed price charging for connection is an inevitable step as going on a user pays basis will leave people who rent and unit dwellers picking up the majority of infrastructure costs while anyone who owns their own home will have panels on the roof and pay virtually nothing in comparison. This move will please the poor and cause anger by the panel owners. Solar panel owners have cause to be angry, they made an investment (planned around 10 years) based on a set of cicumstances that have changed an rightly feel cheated.
      The issue here is not that one side is rich or poor and they should pay or that the a CT is right or wrong but that the whole process is in disarray and constantly playing policy catch up. Why weren’t the plans for the CT and the solar rebate properly evaluated? The answer being that one mister Kevin Rudd dismantled the legislative oversight process that existed since the times of Hawke and an ever increasing litany of f**k ups followed….

    • Achmed says:

      10:53am | 07/12/12

      didn’t add your claimed 15% to my bill…...7.8% on mine…..

    • Loxy says:

      03:05pm | 07/12/12

      Borderer - I’d like to know where you get the figure of 15% from? I haven’t noticed any increase in my bills since the introduction of the CT.

    • Blackadder says:

      04:50pm | 07/12/12

      @Loxy, I did the ‘before’ and ‘after’ comparisons given my Origin bills, comparing actual usage and costs, to those advised increases in the letters Origin issued. My Origin bills will be increasing 20%. I’ve since changed providers. My exit from Origin was confirmed when, within a month of the increase being announced, the CEO of Origin was splashed in newspapers boasting of his multi-million dollar salary, along with the massive pay-rise achieved in the wake of slugging his customers.

    • Achmed says:

      06:42am | 07/12/12

      Why dont were see anyone continuing the work of Nikola Tesla on the use of atmospheric electricity? and the wireless transmission of electricity?
      Most probably because atmospheric electricity is free, and with wireless transmission who would be able to exploit consumers and make a profit?  Any work to devleop the technology continues to be stifled by the big international companies that get their profits from digging stuff out of the ground and making something that is free in the atmosphere

      Reply

    • Big Jay says:

      06:43am | 07/12/12

      I didn’t see the govt doing anything when house prices shot up over 50% in 5yrs. But I guess housing isn’t a bill as such it’s more asset price inflation that noone should worry about…pffft

      People always whinge over bills, even predictable stuff like power and car rego.

      Reply

    • Colin says:

      06:44am | 07/12/12

      Private industry wants to make profit. And more profit. We were completely stupid selling off all of our public-owned infrastructure for the few small pieces of gold (that we have now wasted on idiotic schemes, anyway) and now we are Paying the Piper.

      Utilities, public transport, and other public infrastructure should all be owned by the people through the government. That was what our taxes used to be for. Now it is all, ‘User pays’...and pays, and pays…

      Reply

    • Tim says:

      08:10am | 07/12/12

      It’s a regulated industry, they don’t get to just make “profit and more profit”.
      The return on investment for utilities is extremely small.

      ” ‘User pays’...and pays, and pays… “

      No, it’s not. But it should be.

    • Colin says:

      09:01am | 07/12/12

      @ Tim

      “The return on investment for utilities is extremely small.”

      Really? So why are they in the business then..?

      No, public utilities should remain public utilities; it they aren’t engineered to make a profit because they are part of the Greater Good that infrastructure is for a civilised society, then their prices remain low and people are able to obtain ESSENTIAL services at a reasonable price.

      When has it ever been right to make basic needs extortionately expensive..?

    • Colin says:

      09:56am | 07/12/12

      @ Tim

      Utilities are PUBLIC utilities and, up until recent decades, were paid for by our taxes and minimal contributions for bills for the greater good of all those in a civilised society; it was part of our basic infrastructure needs (the others being food, water, and shelter)...Now we have moved to “User pays”; when did basic human rights in a civilised society become subject to extortion..?

    • Tim says:

      10:58am | 07/12/12

      “Really? So why are they in the business then..?”

      Because it’s low risk. The return is small but it’s pretty much guaranteed because everyone needs power, water, gas etc.

      “When has it ever been right to make basic needs extortionately expensive..? “

      Access to utilities is essential, access to climate controlling your house 24/7 not so much.

      What you don’t see is that the poorer people are being forced to subsidise well off people because of the expansion of these energy hungry appliances. We all pay for the infrastructure that’s only used for a minute amount of the time.
      We need to charge people the true cost of their energy use to force them to change their behaviours. If they do, the access for everyone will become cheaper overall.

      We should always aim to use our resources in the most efficient manner possible and putting a true price on our usage enables us to do that.

    • maria says:

      11:03am | 07/12/12

      We were completely stupid selling off all of our public-owned infrastructure for the few small pieces of gold…..

      Have we been asked ?????
      Did we have a debate?????
      or they decided to sell regardless of our opinions the same way as it is happening in any autocratic society.

      A democracy is a form of government in which all citizens vote on issues that face the nation.

      A representative democracy is a form of government in which people theirs dictators.

      Can you spot the difference?

    • ronny jonny says:

      06:51am | 07/12/12

      Getting rid of all the green schemes and subsidies would be a good place to start. Money for nothing.
      Also I can’t see that having the plethora of dodgy retailers that produce nothing and are merely billing companies helps achieve better prices for consumers. Power supply deals have become as complicated as mobile phone contracts, ninety percent of what is offered is bullshit. Does anyone really understand all that gobbledy gook?

      Reply

    • mikem says:

      08:50am | 07/12/12

      Not sure what it is like elsewhere but here in WA the power companies greatest expertise seems to be in ensuring that top management pay themselves very well. 

      Its also interesting to note how throughout Australian the move to a private model for power generation has resulted in a massive increase in power prices instead of the promised savings.  No surprise there given the track record for privatising government service around the world. The reality never matches the hype and we the consumer always end up with higher prices and/or poorer service delivery.  And yet the same old furrphy gets trotted out time and time again to justify privatisation and our dumb politicians fall for it.

      Reply

    • Leigh says:

      12:16pm | 07/12/12

      Most of use power at peak times to stay cool or warm. So, nothing is going to reduce our power bills. Only lunatics will stop using power at times when they really, really need to use it.

      Reply

    • Jack says:

      01:32pm | 07/12/12

      If your assertions about power bills being a bigger concern to people than rent/mortgage and groceries, it really only proves that Australians clueless when it comes to personal finance.

      And math.

      Reply

    • OzTrucker says:

      01:33pm | 07/12/12

      States could pass legislation that requires all new construction to have solar installed. Over time the problem of supply would be solved. No need for nuclear. No need for coal. If stand alone solar systems are installed even the base load problem is solved. Or is that just too simple.

      We no longer own the power companies and we don’t own the coal mines so why should keep them happy.

      Reply
 
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