Dissenting Report from the Australian Greens
The committee heard compelling, consistent evidence about the depth of
the regulatory and institutional failures of the National Electricity Market (NEM)
and the inexcusable gouging of consumers. Yet the committee report recommends
no substantial remedy to address these failures. While the Australian Greens do
not oppose the recommendations, we dissent from the report on the basis that it
represents a failure of political will at a time when reform is essential to
facilitate innovation, bring down greenhouse gas emissions and reduce power
bills for Australian households and businesses.
This report does nothing to face up to the energy revolution now
overtaking traditional energy generation, transmission and distribution or to
the challenges presented by addressing global warming or the opportunity to
create jobs, new investment and deliver tremendous innovation through
reform. The transmission and distribution systems are in a death spiral and
battery technology makes business as usual untenable.
The outrage that committee members often expressed throughout the
hearings when learning about how network companies have gouged the current
system has not been converted into recommendations that would prevent its reoccurrence
into the future. While the content of the majority report does clearly outline
the problems and the case for change, much like the Abbott Government's review
into the Renewable Energy Target, the recommendations go against the actual
findings of the report.
After the Select Committee into Electricity Prices released its report
and recommended significant changes to our network system in 2012, then Prime
Minister Julia Gillard warned network companies to stop gouging their
customers, and urged state governments through COAG to act or federal action
would be taken by the end of 2012 to beef up the Australian Energy Regulator's
She failed to act in spite of a clear statement of intent to do so.
This report now represents the second lost opportunity to confront the
problems laid out before the Australian public as a record number of
Australians are unable to pay their electricity bills.
Any claims by either the government or opposition to say they want to 'tackle
cost-of-living issues head-on' following this report will be empty rhetoric.
When there is no courage for substantive action to be directed at
network companies such as those in Queensland and NSW whose respective profit
of 47 per cent and 42 per cent are directly obtained from households and
businesses, it is clear the pretence that the NEM is geared towards the
interests of consumers is exposed. The NEM has been captured by political
and/or powerful vested interests as lucrative revenue raising tax generator. If
ever a tax needed axing, it's this one.
This is because State Governments of Labor or Liberal persuasion either
want to maximise the value of network companies for future privatisation
proceeds and/or deliberately use the complexity of the pricing determination
process to implement clandestine taxation on its citizens. They argue that
profits can be paid as dividends to pay for education, health et cetera, but in
reality those profits are the proceeds of a regressive tax which impacts lower
income households harder than anyone else.
The institutional arrangements of the AER and the AEMC were designed by
the states for the states allowing them to derive revenue from their
rule-making and pricing determinations. For example, the current Chair of the
AEMC, Mr John Pierce was appointed directly from his position as the NSW
Treasury Secretary. The financial benefits that have flowed to NSW since
the design and inception of the NEM have been considerable.
While recommendation 14 of the report will go some way in addressing state influence
over making rules and setting allowances that benefit themselves, it does
not directly remove the conflicts of interests that are embedded throughout the
current institutional arrangements.
The excessive profits of NSW and Queensland networks are not because of 'inefficiencies'
or some other privatisation clarion call, it is because the current
institutional structure lends itself to political (and subsequently
State-owned entities are treated by the AER as competitively neutral in
a regulated monopoly. This enables them to claim commercial rates of borrowing
when they enjoy lower interest rates commensurate with their state's credit
rating. They also receive allowances for taxes that they do not pay. Consumers
pay for these costs. This is wrong.
The significant source of revenue that state-owned networks provide to
their state governments should not be determined within a web of regulatory
complexity and concealed political influence. The ultimate responsibility for
increased network costs that are passed on to consumers should lie with the
State government that benefits from those funding decisions. Then the public
will be able to decipher who is responsible for decision-making that affects
their electricity bill.
NSW and Queensland network companies should not be privatised. However,
publicly owned networks should be prevented from participating in the AER
Pricing Determination processes. The costs that are ultimately passed on to
households and businesses must be approved by the relevant State Minister.
The recent excessive rise in fixed costs borne by electricity users
during a period of declining aggregate electricity demand and increasing
infrastructure investment presents some very serious challenges. These high
costs have impacts both on social service policy and our economic
competitiveness. Mr Dale Holliss of the Bundaberg Regional Irrigator's Group
provided evidence that this problem had the potential to destroy the viability
of entire communities that depend on irrigated agriculture,
which is fast being rendered uncompetitive by electricity costs as outlined by
Mr Warren Males of the Australian Sugar Industry Alliance:
[Our current Network System] is failing electricity consumers
and it is directly and adversely affecting the international competitiveness of
the export-oriented Australian sugar industry. Electricity tariffs for
irrigation use are up 96 per cent, compounded over seven years. Sugar prices
over the same period—at least, I should say, over the last 18 months—have
fallen by more than 50 per cent. So we have electricity prices up by almost
100 per cent and sugar prices down by 50 per cent. Since the
framework was first introduced, electricity prices in Australia have been
increasing at a faster rate than anywhere else in the developed world. This is
a bizarre turn of events for the energy-rich Australian economy.
The over-investment that has occurred in the previous five-year
regulatory period to 2013 has built a class of future stranded assets whose
write-downs will either be borne by network companies or electricity users,
plus it represents massive opportunity costs. The $44.7 billion
spent by network companies over those five years could have provided every
Australian household and business with access to a world-class National
For instance, the unique valuation treatment of network assets allows
the net values to be indexed by the Consumer Price Index. This maintains the 'real'
value of the assets despite evidence that their economic valuation is
considerably below this, especially when the asset has reached the end of its
useful life. It is households and businesses that pay for this perverse
accounting allowance. Who designed this absurdity and why will we allow it to
The evidence heard by the committee and the content of the majority
report outlines that an extreme burden has been placed on everyone who receives
an electricity bill and there is nothing that they can do to avoid these costs,
except for leaving the grid entirely. Which people will do so as soon as
batteries come down the cost curve.
Therefore, it is incumbent on law and policy makers to rectify the very
serious problems from previous overinvestment by forcing a revaluation on the
regulated asset base of network companies. State governments will have to
decide whether to write down the asset base and transfer the debt to state debt
to be serviced by all taxpayers or continue to gouge consumers for the state
government's previous greed. Selling off is a worst case scenario as sweeteners
will be required to seal the deal and that will lock in higher consumer prices
and lock out the innovation that drawing a line under the mess and beginning
from scratch would facilitate.
Corporations law requires that companies must recognise impaired assets
by writing down their asset values when needed. If a network monopoly were to
voluntarily reduce its asset values to reflect their economic worth, it would
radically reduce its profitability and reduce electricity prices which would
free up desperately needed income particularly for low-income households and
businesses. Naturally networks will never do this voluntarily.
While there are very serious consequences with state entities forcing
the revaluation of assets, it has become clear that this is the least, worst
option available for the long-term interests of both network companies and
Australian businesses and households. Although the Australian Greens fully
appreciate the possibility of an increase in the cost of capital for network
companies because of the perceived increase in risk, this amount will be
insignificant in comparison to the savings that Australians will experience on
their electricity bills as the previous overspend if rectified. Furthermore,
the regulatory allowances have already compensated network businesses for this
risk, and as noted, their actually profitability has far exceeded regulatory
Asset revaluations would also strengthen the longer-term position of
network companies as assets that are vulnerable to both demand reduction and
customers leaving the grid would be identified and rectified. This would not
only give investors more confidence in the true state of the network's asset
position but it would reduce the impact of the 'death spiral' on networks
customer base as the solar and battery storage era erodes it.
That the Australian Energy Regulator be given the power to revalue the
regulated asset base of network service providers.
Australia's electricity system is currently undergoing a radical
technological revolution. The era of centralised power being carried hundreds
of kilometres to its customer is coming largely to a close. The rise of locally
generated, stored and distributed energy is inevitable. Network companies need
to adjust to this transformation. If they resist it, or do not change, their
refusal to adapt will destroy their businesses.
As noted in the report, Australia's electricity demand will continue to
decline. This means the existing financial incentives that encourage expansion
of the regulated asset base are fundamentally flawed and will continue to
exacerbate what is already a severe problem of creating unmanageable
infrastructure spending distortions.
In order to reverse this train-wreck, new incentives have to be laid out
for networks to provide innovative services that match the technological
transformations occurring around them. Building more and more infrastructure is
not a sustainable business model for networks into the future.
This technological transformation in energy systems is being driven by
the absolute necessity of minimising the reach and depth of global warming. Our
national electricity system, as the biggest national contributor to emissions
has to be recalibrated to help achieve Australia's objectives at reducing
pollution as well as creating economic opportunities from the innovation that
has already proven to be so potent.
To create this new suite of rule-making that will foster innovation and
reduced demand, the objects of the NEM legislation must be expanded to cover an
environmental objective, namely reducing emissions. This objective would inform
subsequent rule-making and financial incentives.
Regulatory and commercial arrangements need to be adapted to facilitate
the development of decentralised energy systems. Tariff structures must be
adopted that correctly charge for the development and use of networks so that
distributed generation and storage and local demand response is properly
valued. This would have huge financial benefits for households, industries such
as sugar mills, large commercial buildings that stand ready to generate and
trade their own electricity.
Fundamental redirection of what we want our grid to do will enable the
integration of decentralised energy into the existing grid and offer a hope for
network companies to operate profitably and innovatively into the future. Such
changes are necessary to accommodate the inevitability of further rapid change
in technologies, consumer behaviour and government policies to escalate our
response to global warming.
That the objectives in the National Electricity Market laws include an
environmental objective that would require the National Electricity Market to
facilitate achievement of the UNFCC Greenhouse Gas Emissions targets agreed to
by Australia. A new object would inform rule making and co-ordinate Australia's
efforts to reduce emissions in the electricity sector at the same time as
guaranteeing a secure supply of electricity in an affordable way.
Australia is unique globally in bifurcating the design and
implementation of regulation in separate regulatory authorities. This impedes
innovation and adaptation and has led to inertia, ossification, poor regulatory
design and implementation. The disastrous outcomes in network service
provider profits and costs bears testament to the flaws of this current
In light of the Harper Review recommendation and the many reasons
outlined in Chapter 7 of the report, the natural conclusion is for the AEMC and
AER to be collapsed into a single organisation.
In light of the recommendation made by the Competition Policy Review
(Harper Review) regarding a single national access and pricing regulator, and
in light of the committee's concerns about the current institutional
arrangements the committee recommends that the Australian Energy Market
Commission and the Australian Energy Regulator be collapsed into a single body.
Christine Milne Senator Larissa Waters
Tasmania Senator for Queensland
Leader of the
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