Gillard’s energy sector changes: thumbs up and down?

Prime Minister Julia Gillard recently unveiled a new energy plan she claims will help Australian families save $250 a year on energy bills, based on estimates by the Productivity Commission.  Ms Gillard on Sunday announced she would be taking her plan to state premiers at next week’s Council of Australian Governments (COAG) in Canberra.

The Prime Minister’s plan proposes major reforms to the energy sector and has been met with mixed reactions.  The plan includes:

  • New rules to determine the return energy companies get for their big capital investments.
  • a funding boost to the Australian Energy Regulator (AER)
  • rewards for companies that moderate their energy usage during peak periods (time of use pricing)
  • introduction of smart meters
  • more competitive or deregulated  electricity tariffs
  • a “consumer challenge” panel for investments and the prices arising from them

Aspects of the plan met with strong opposition within the Queensland and NSW governments. NSW has already stated that it intends to stick with regulated prices for households. The acting NSW Energy Minister, Katrina Hodgkinson, also said the federal government needed to explain how much consumers would end up paying for smart meters. The Queensland Energy Minister, Mark McArdle, said: ”Queensland will not move towards price deregulation”, and the state has temporarily frozen household retail tariffs.

Some components of the plan have been better received.  The Australian Council of Social Service welcomed the consumer challenge panel as a real step towards improving community engagement on power pricing.  “We would be pleased to see a consumer challenge panel entrenched within the Australian Energy Regulator, but we are also keen for the Government to establish a stable, independent national consumer body that ensures that consumer interests are front-and-centre in all energy market processes” said ACOSS CEO Dr Cassandra Goldie.

Consumers’ Federation of Australia joins ACOSS in support for the proposed funding boost to the AER and warned that the argument by some States that the AER should be separate from the ACCC runs the risk that the AER does not remain strong and independent.  Instead it may become too close to the industry it regulates.

There are also fears that the plan may disadvantage certain consumer groups.  Director of Campaigns at Consumer Action Law Centre, Gerard Brody, said time of use pricing and smart meters must be implemented in a way that does penalise consumers who are unable to shift their time of use.  This might for example include people with disabilities who require continuous use medical equipment. It’s also important that different smart metering systems should not have the effect of undermining competition by locking consumers into a contract with a particular supplier.

It is important for consumers that COAG does make make substantial reforms to the energy sector and not get embroiled in political infighting.

CHOICE has begun a Countdown for Electricity Reform campaign in an attempt to ensure action is taken at COAG, urging politicians “not to fumble this once-in-a-generation opportunity to fix Australia’s broken electricity system and reduce future pressure on household bills.”

Much of the proposed plan’s benefits are hypothetical, and it will remain to be seen how the policies are implemented in order to determine their effectiveness.  For instance, the $250 savings per household?  The Productivity Commission’s most recent report stated “The actual extent of the estimated benefits depends crucially on the manner in which demand management is implemented – for example, under some implementation scenarios, some initiatives are forecast to deliver net costs”.

The key issue is how the plan is altered in negotiations at COAG and how it is implemented. Consumers’ voices are not sufficiently heard in some parts of the energy debate. An important outcome, as the government understands, is for a more effective structure and better resources for effective consumer energy advocacy.