“Throughout the 1980s, '90s, and most of the 2000s,
electricity prices tracked fairly closely to general consumer price trends. In
the past decade, however, electricity has shot off the charts. Since 2008 power
prices have risen 117 per cent, more than four times the average price increase
across sectors.” [ABC
News, 18 July 2018]
All three major NSW political parties - Liberal, Nationals and Labor - along with their federal counterparts drank the Kool-Aid when it came to the alleged desirability of privatising state assets in the electricity and gas sectors of energy supply.
Here is a brief outline of the how and why......
DECEMBER 2010
"The completion of this first tranche
of the energy reform process meets the government's objectives – we have exited
electricity retailing, we have created a competitive market structure approved
by the ACCC and we have received a strong financial return for the taxpayers of
NSW,” he [NSW
Treasurer] said…..
Earlier, the shadow
treasurer, Mike Baird, said: "Whatever they finally announce, it is clear
from the ongoing speculation that the receipts will be at the lower end of the
$5 billion to $7 billion range, which is about half what these assets are worth
– and that is before you take off the $2.3 billion in inducements for the new
coalmine needed to get the deal away.
'The end result is
billions of dollars lost forever."
A UBS analyst, David
Leitch, said: "NSW households are in for higher electricity tariffs and
more people at their front door, trying to get them to change electricity
supplier."
NOVEMBER 2013
"When this bill is
passed, this Government estimates that power prices will go down by 9 per cent,
gas prices will go down by 7 per cent, and that means that the average power
bill will be $200 a year lower and the average gas bill will be $70 a year
lower," Mr Abbott said on October 15.
JUNE 2014
As of 12 May 2017, two
government assets have been privatised in 2017. The most recent privatisation
is the 99-year lease of a 50.4% share of Endeavour Energy. On 11 May 2017, the
NSW [Berejiklian
Coalition] Government announced that a consortium led by Macquarie Group's
infrastructure arm had been successful in securing the tender for a price of
$7.6 billion. Along with Ausgrid and Transgrid, the lease of Endeavour Energy
represents the final of the three “poles and wires” sales – a key policy of the
Liberal/National government in the 2015 State election. Announcing the sale,
NSW Treasury stated:
The
NSW Government will retain a 49.6 per cent interest in Endeavour Energy and
will have ongoing influence over operations as lessor, licensor and as safety
and reliability regulator.
June 2017
Electricity is now
management heavy with a blow out in the number of managers relative to other
workers. In addition electricity now employs an army of sales and marketing and
other workers who do not actually make electricity. In addition the reforms
seemed to encourage profit gauging on the part of companies in the industry who
are able to inflate the asset base used in calculating the permitted return on
assets. More than half the asset base appears to be ‘goodwill’ and retained
earnings. There is a weird circular process in which high rates of return are
capitalised in ‘goodwill’ and other fictitious or notional items while high
profits guarantee high retained earnings which also feed into the asset base.
In that way the unproductive capital base is allowed to increase and we are
charged for capital that has no real function in producing electricity….
A host of factors have
been blamed for the increase in electricity prices relative to other prices but
we would point out that the main departure from the rest of the price index
happened post privatisation and corporatisation.
JULY 2017
Origin, EnergyAustralia
and AGL have all announced price increases for electricity and gas starting
from July 1….
In NSW, residential
EnergyAustralia customers will see electricity prices increase by up to 19.6
per cent. Origin Energy customers will get a 16.1 per cent rise.
DECEMBER 2017
The key supply chain
cost components examined in the report include wholesale electricity purchase
costs, regulated network costs and environmental policy costs.
Annual electricity
prices for the representative consumer on a market offer in New South Wales:
*
increased by 10.2 per cent from 2016-17 to 2017-18 due to higher wholesale
electricity costs, driven by the retirement of Northern and Hazelwood
generators and increasing gas prices
*
are expected to decrease by an annual average of 6.6 per cent in 2018-19 and
2019-20. The expected decreases are largely attributable to decreases in
wholesale electricity costs driven by expected new generation (approximately
4,100 MW across the NEM) and the return to service of the Swanbank E generator
(385 MW in Queensland). In addition, in NSW, regulated network costs are
uncertain in the two years to June 2020 due to the AER being required to remake
revenue determinations for the NSW distribution network providers for the
2014-19 regulatory control period.
JANUARY 2018
The most significant
price rises were electricity, up 12.4 per cent, fuel up 10.4 per cent, domestic
holiday travel up 6.3 per cent and fruit up 9.3 per cent.
JULY 2018
This was comprised of
$120 due to the [national
energy] guarantee and $280 due to new investment in renewable energy that was
already planned, mainly because of the Renewable Energy Target, which will run
to 2030….
The ESB [Energy Security Board**]
proposal increases the annual average saving to $550 on 2018 prices, of which
$150 is due to the guarantee and $400 due to renewable energy.
AUGUST 2018
After reading the National Energy Guarantee Consultation Paper as well as the 1 August 2018 Final Detailed Design and listening to statements made by the Turnbull Government, I personally find it hard to believe this change in federal government policy will significantly limit the rate of increases to household energy costs over time when this is based on an assumption that the market will respond by lowering prices across the Australian wholesale and retail sectors of energy supply.
Talk of money 'saved' by households is illusory as It will certainly see no reduction in the actual amounts listed on 2019-20 household electricity and gas bills once this guarantee comes into effect.
Network
charges represent on average about half of the electricity supply chain costs,
with generation and retail costs (combined into the ‘competitive market’
category) accounting for 42%, and environment policies adding the remaining 8%,
based on the latest AEMC Electricity Price Trend report.
The
make up of the total average retail cost is shown in Chart 6 which reveals the
single largest component of the price of electricity is distribution costs,
which represented about 40% of the average cost of electricity. Over the AEMC
forecast period to 2018/19, these costs are still expected to represent by far
the largest component of the electricity cost stack, albeit fractionally lower
in a couple of years’ time.
The
next largest component is the wholesale price of electricity, which in 2015/16
represented about 28%. Under the AEMC Base Case scenario – which includes the
retirement of the brown coal fired Hazelwood Power station in Victoria – this
cost component had been anticipated to rise steadily over the forecast period
to represent about 30% of the cost of electricity by 2018/19.
As
shown in Chart 7 below, these three jurisdictions experienced higher than
anticipated wholesale electricity costs in the order of between 30% and 80%
when compared to original forecasts for FY2016/17. When considered on a
weighted average basis, using the same methodology applied by the AEMC to estimate
the values for the National Summary, wholesale electricity costs have therefore
been about 17% to 20% higher than anticipated.
This
increase in wholesale electricity costs pushed the bundled cost of electricity
to rise by about 5% higher than anticipated by the AEMC, and shifted the
relative importance of wholesale prices in the cost stack from about 28% to
31%.
Formed
out of the Independent Review into the Future Security of the National
Electricity Market (the Finkel Review), the Energy Security Board comprises an
independent chair and deputy chair along with the expert heads of the Australian
Energy Market Commission (AEMC), the Australian Energy Regulator (AER) and the
Australian Energy Market Operator (AEMO).
The current Board membership is Chair Dr Kerry Schott AO,
Deputy Chair Clare Savage, Australian
Energy Market Commission Chair John Pierce, Australian Energy Market Operator
Chief Executive Audrey Zibelman, and the Chair of the Australian Energy
Regulator Paula Conboy.
