Do you think you're paying too much for electricity? Would you like to
see an end to hefty annual price rises, maybe even a fall in prices that
goes beyond the abolition of the carbon tax? Well, be patient. The
econocrats are working on it.
It may surprise you that they've been in
the process of reforming electricity prices for the best part of 20
years, and they're far from finished. They got part of the power system
working well, had a bad slip with another bit, and the jury's still out
on a third. But they're working away and are confident of success -
eventually.
The national electricity market - covering all of
Australia bar Western Australia and the Northern Territory - is actually
a creation of our econocrats, their grand experiment in market
competition.
Before this, we had separate, state-owned monopolies
that charged us pretty much what they wanted to charge, particularly
because our demand for power kept growing every year. The reformers'
bright idea was to link up all the eastern and southern states and turn
them into a market by making all the individual power stations compete
to feed electricity into the national grid at the lowest prices
possible.
Buying the power at the other end of the grid would be
various electricity retailers, which would deal directly with households
and business users. These, too, would be required to compete with each
other to win our business, since we'd be free to buy our power from
whichever retailer we chose.
Linking the power stations in the
wholesale market with the retailers supplying power to you and me would
be the high-voltage transmission and lower-voltage distribution network
(the "poles and wires", as pollies keep calling it).
Since it
would never be economic to build rival networks, this would have to stay
as a monopoly. And being a monopoly, whether it was sold off or
remained government-owned, the prices it charged the retailers - and
they passed on to us - would need to be closely regulated to prevent
rip-offs.
The reform of the first part of the system has worked
really well. Competition between the electricity generators has been
cut-throat, prices haven't changed much over the years and no power
stations are making excessive profits.
But the cost of generating
the electricity makes up only about 30 per cent of the retail prices
we pay. The big problem has been that faulty rules have prompted the
regulators of the network operators' charges to grant them excessive
increases, to the point where "network charges" now explain about half
of retail power prices.
It's five years of these big increases,
much more than the carbon tax or the renewable energy target, that have
caused retail prices to grow so fast. A big part of the problem is that,
about four years ago, the demand for electricity, which had been
growing every year for a century, stopped growing and started falling.
It
fell mainly because of new laws requiring appliances to be more
efficient in their use of power and because all the fuss Tony Abbott was
making about the price of electricity prompted us to be more
price-conscious and look for ways to reduce our usage.
The network
operators began investing heavily to improve the capacity of the
network to meet the ever-higher peak demand for power on hot summer
afternoons when a growing number of us had airconditioners going full
blast.
One small problem: the fall in annual demand for
electricity meant the brief seasonal peak had stopped rising. For
several years the industry refused to believe the downturn in demand
from the network was more than a blip.
So we've expanded the
capacity of the network beyond what we're likely to need for some time.
But you and I are paying extra for this expansion and will continue
paying until it's paid off.
The good news is the econocrats have
finally woken up to the problem. Actually, they were woken up in 2012 by
the fuss Julia Gillard made when she realised Abbott was framing her
for price rises she didn't cause.
In 2012 the rules were changed
to give the regulators greater power to limit increases in the network
charges passed on to retailers. Such changes take far longer than you'd
imagine to flow through, but from now on it seems likely the network
component of retail electricity bills will stay fairly steady in dollar
terms.
The econocrats have proposed a further reform which, when it
takes effect, will require the networks to bill retailers according to
the time of day and time of year when you and I use electricity. With
the spread of "smart meters" - which show the precise times when each
household uses its electricity - we'll be charged according to our time
of use, with those of us who show restraint during peak periods paying
less, and those who don't paying more. This should produce a lasting
solution to the (expensive) problem of ever-rising peak demand on hot
afternoons.
That leaves the question of the effectiveness of competition
between the growing number of electricity retailers, big and small.
Here the jury is still out. Much depends on how smart we are in finding
the retailer offering the best deal - on which quest I offer some tips
in my little online video spiel.
