Electricity markets deserve better analysis

1 June 2011

The Energy Supply Association of Australia is disappointed and dismayed with the way the network and related regulatory policy issues in the National Electricity Market have been treated in the most recent Garnaut Report.

esaa Chief Executive Officer Brad Page said it is unfortunate electricity prices had been rising strongly over the past few years, but the causes of these cost increases and the options for keeping any future increases to a minimum is a much more complex area than the report appreciates.

“Among other things, the report contends government-owned network companies have an incentive to over-spend compared to privately owned companies; that peak load growth is avoidable; and that inter-state electricity connections should be bolstered,” Mr Page said.

“It is unfortunate that the report has again strayed in to a technically complex area that is well beyond its remit and expertise” he said.

“Professor Garnaut has repeated overly simplistic claims made by a group of industrial electricity consumers that used selective analysis and came to dubious conclusions.”,

Closer examination of these claims reveals:

• Network companies, regardless of ownership, must obtain the approval of the independent umpire – the Australian Energy Regulator (part of the ACCC) – to capital works programs and their operating expenditure budgets according to a set of uniform rules made by the independent Australian Energy Markets Commission;
• Individual States determine on behalf of their communities the level of reliability that networks must achieve. This affects what has to be built and how the networks are to be operated and is not a matter that the companies can ignore;
• Peak load is growing as more Australians install air conditioners and energy hungry appliances. The electricity supply system is required to meet these peaks. Undoubtedly this leads to capital under-utilisation and this is a matter of concern to the whole industry. It is not, however, the fault of the network companies; and
• Reinforcing the interconnectivity of the electricity system has long been seen by many as a way to increase competition and lower energy prices. But successive economically literate policy makers and regulators, including the ACCC, have found that sound economic tests for such augmentation are rarely met. Indeed, had such investments proceeded, consumers would have paid for the upgrades which in all cases would have outweighed any reduction in energy costs.

“These are all complex matters,” Mr Page said.

“Governments recognise this and have established expert, independent bodies under the policy guidance of the responsible Commonwealth, State and Territory Ministers

“The established expertise, transparent consulting arrangements and independent decision making processes of the market bodies – AEMC and AER – are well calibrated to address perceived weaknesses and problems in energy markets.” 

Ends.

Media contact:        Caroline Page         0421 103 089

The Energy Supply Association of Australia seeks to positively influence government policy decisions to ensure that Australia enjoys the benefits of a safe, secure, reliable, sustainable and competitively priced electricity and natural gas supply.

esaa’s 40-plus member businesses have more than $120 billion in assets and infrastructure investment plans worth over $49 billion over the next five years. The Association is fuel and technology neutral and member businesses have investments across a wide range of fossil fuel and renewable generation technologies.