The ACCC has recently opened an investigation into why electricity prices have climbed considerably in the past few years. It’s an outcome that has been one factor promoting the electricity sector to a front page news story – including prior reference to my review of Q2 prices on WattClarity, and is a significant reason why it’s clear to me we’re in the midst of an evolving train wreck.
It was with interest, then, that I read in the Courier Mail (on Wednesday 26th July?) an article contributed by Rod Sims at the ACCC highlighting 6 big factors that had all combined to contribute to the higher energy prices. This (I believe) was timed to coincide with both:
- Public forum in Brisbane on Tuesday 25th July into electricity supply and prices – with forums in other locations still to be held
- the ACCC/AER Regulatory Conference in Brisbane the next two days – Thu 27th July and Fri 28th July (today).
My sense is that there are more than 6 – but the most important point (in my view) is that there are a number of factors, some inter-related – and yet this seems to be often (overly) simplified in the general desire we all have for a simple view of a “smoking gun”.
Here’s an example from today in a tweet that involves at least 3 different actors (Stefan, RenewEconomy and TAI (release today but with link to full report from June)) where the message has been over-simplified to be written as “gold-plating behind sky high prices”.
Unfortunately, reality is often more complex than 140 characters will allow for – and doubly-unfortunately, it seems we are collectively grasping for answers that fit into pithy sound-bites.
1) My recollection of Rod Sims’ 6 factors contributing to higher electricity prices
For the benefit of those who could not read Rod Sims’ words on Wednesday, here’s my recollection of the 6 factors listed as contributing to high prices:
1a) Reduced competition
My recollection is that Rod Sims wrote about this from the perspective of both the wholesale market (for instance, in terms of the 3-into-2 merger of QLD Government-owned Generators that’s the first of three factors I mentioned here with respect to high wholesale electricity prices in Queensland). The Courier Mail quotes Rod Sims urging the break-up of the two large QLD generators.
Rod also wrote about consolidation in the retail sector, with respect to a high percentage (I think something like 80% of customers – not sure if by load or customer volume) still with the “big three” of AGL, Origin and EnergyAustralia.
1b) Returns on assets at network business has increased
Rod Sims also wrote about high returns on assets at network businesses – stemming from a number of factors (ownership, form of regulation, Merits Review process, etc). This is the “gold plating” argument advanced above.
1c) Over-reaction to outages, leading to excessive reliability standards
Rod Sims also wrote about the reaction of prior state governments in establishing (what are now seen as) excessive reliability standards leading out of the experience of public backlash to distribution network outages during summer storms (e.g. the “Somerville Enquiry” commissioned by the Beattie Labour Government in Queensland after blackouts of summer 2003-04) .
1d) High gas prices
Rod Sims also wrote about the contribution of high gas prices.
1e) Overly generous green schemes
Rod Sims also wrote about overly generous green schemes – particularly focusing on excessive Feed-in-Tariff regimes implemented by previous Governments which paid recipients too much in some states (see previous note about how I’m personally a beneficiary of this – but understand that others are going to be paying (for at least another decade) for this benefit to us at home).
1f) What was the 6th factor noted??
Apologies – have drawn a mental blank on the 6th one.
My sense is that there are more than 6 factors at work, but that Rod only highlighted 6 for whatever reason. However at present I can’t remember which factor Rod Sims picked for the 6th one (or did he separate out the market consolidation in 1a above?)
Apology on this record
Unfortunately I did not save a copy of the article at the time – and have not (in a quick scan) been able to find a link to it (either on the CM site, or the ACCC site, or elsewhere). In the absence of such a record elsewhere, I’ve noted my recollection of Rod Sims’ comments.
I think the 5 factors I’ve listed were 5 of the 6 that Rod noted, but the order is probably different than as Rod had written.
If someone can point me at a URL link to the actual comments, I’ll link them in here for completeness?
Here’s a link to the 6 Factors
With thanks the ACCC, they’ve come through with this link on the Courier Mail site to the 6 factors (unfortunately behind a paywall restricting access).
Rod noted the 6 factors in his conference address
Helpfully, Rod has noted that he walked through his 6 factors in his conference address this week (I was correct in suspecting I’d combined two-into-one in my point (1a) above).
2) ACCC enquiries into energy prices
It’s not 100% clear to me, but it seems that the ACCC has a number of related inquiries and investigations currently underway, including the following:
2a) NEM-wide focus, on retail prices
According to the ACCC website here, the Treasurer has asked that the ACCC conduct an inquiry into retail electricity prices. There’s this initial information here on the ACCC site, and also this information about Public Forums currently being held (including the one in Brisbane on Tuesday this week).
This document gives some key dates:
- Preliminary report to the Treasurer by 27th September 2017
- Final report by 30th June 2018
This paper provides an overview of submissions made in response to the Issues Paper.
2b) Queensland focus, on wholesale generators
It’s my understanding that the ACCC is starting to review into the market power of the Government-owned generators in Queensland, following a request from the Federal Minister Energy & Environment.
However I can’t immediately find anything about this on the ACCC website.
2c) Gas market transparency
For completeness, there is also an ongoing inquiry into Gas market transparency, with more details available here.
Great reporting as always Paul.
Paul
Thanks for the post – as usual topical and to the point
The 6th point made by Sims was about the “loosening”of the network regulation rules about 10 years ago to maintain or boost government revenues. We are still living with the result of this and will do so for many decades to come unless something is done.
But we also need to reflect that the electricity wholesale market is becoming less competitive and this has allowed the wind and coal fired generators to sell their product at prices twice what they used to sell it at profitably, and the benefit of the differential between the cost of wind and coal fired generation and the selling price is not going to consumers
Gold plating would be going on with events like the Victorian bushfires and the SA blackout and mandated compensation in mind. Politicians respond to more quickly to the outraged twitterati.
Had an example of kneejerk compensation when the BIL enquired as to whether I had had a blackout in suburban Adelaide like he had but couldn’t remember having one but the $450 compo cheque said he did. No for me but then I reminded him there’s been a large country blackout including his shack at Mannum and that was it although he regularly enjoys positive cheques from his solar FIT there given its useage.
As for gold plating in general does it also have a lot to do with voltage and frequency management of widely dispersed variable power sources and can they even distill out those costs? Are there any estimates of that around or does it go deliberately unanswered through political censorship of enquiry?