In a fact sheet released last year, the QCA reported that “most residential and small-business customers in regional areas pay electricity prices which are significantly below the cost of supplying them with electricity”.
“In total, the Queensland government subsidises regional electricity prices in excess of $400 million each year,” the QCA reported. That subsidy will rise to $460 million this year should the draft tariff recommendations survive the extant review process.
Nonetheless, the Rebel Six have been inspired to action by a thesis that says their state’s Labor government is “robbing $1.5 billion from all Queenslanders” by forcing everyone to pay too much for power.
As we have noted in the past, there is some truth to this. Or, at least, there was.
Landmark report
The Australian Competition and Consumer Commission’s landmark report into the state of east coast power markets highlighted the potential that Queensland’s state-owned generators had gamed the system through its bidding processes, and that had artificially driven wholesale power prices around the national energy market.
The ACCC did not study Queensland’s market beyond the contestable corner in the south-east, presumably because regional markets were already regulated.
The study revealed that south-east Queensland retail prices had increased to a point where they matched those of South Australia and NSW and were higher than those in Victoria. At the same time, though, the ACCC observed that south-east Queensland retailers earned the lowest margins in the country and that retail increases had been driven by increased wholesale prices and network charges.
Now, the priorities that drove the pricing tactics of the Queensland generators up until last year have been shifted by state government edict. But the price-dampening effect of that intervention has been slower to flow through to actual wholesale market pricing than some might have expected. That is largely because retailers acquire so much of their book forward.
As the QCA explained in another helpful fact sheet, retailers had bought up to 62 per cent of their contracts before government intervention. When those contracts roll off, the expectations are that those pressures in Queensland’s wholesale market should ease further.
So, as usual when it comes to the febrile debate over energy and its pricing, we have a kernel of truth being amplified into a self-serving clarion for justice and reform.
The result is that a reluctant Morrison government is being urged by the Rebel Six to resuscitate the big-stick legislation that would allow a future treasurer to use the Federal Court to force power companies to divest assets on the back of an initial recommendation by the market regulator.
As well, for reasons not that clear to anyone who knows much about the supply-side imbalances of the national electricity market, the rebels also want federal underwriting for a new power station in regional Queensland. Queensland is not a state short of base-load power.
Delicately balanced federal seats
Then again, it is a state that hosts a lot of coal mines that employ a lot of coal miners, and a good deal of them are actively unimpressed with a state government bent on diminishing its carbon estate.
Queensland’s coal fields are also home to some delicately balanced federal seats, not least of them being Michelle Landry’s Capricornia. As it turns out, the coal miners’ union has a particular prejudice against Landry and is determined to see her replaced by a union official-turned-Labor candidate.
A sensible starting point for any discussion of the divestment powers the Prime Minister once coveted is that the ACCC did not pursue the case for divestment on the back of its inquiry into east coast power markets. The reality is that these are powers that are the antithesis of what is needed.
The Australian energy sector is crying out for appropriate investment signals. Instead the Prime Minister offered the most naked expression of sovereign investment risk since the Rudd government gave us the resource super profits tax.
Now, to be fair to the most recent past iteration of the Coalition, this policy failure was not for want of effort. But, having failed manfully to manufacture an energy policy shaped by the need to deliver an affordable, reliable energy supply while we step through the challenge of decarbonising our economy, the government resorted to the blame game, name-calling and “big sticks”.
The real problem there, of course, lies within the Coalition itself. Energy policy has become a natural proxy for the Coalition’s internal climate wars. And while this division remains the natural order within conservative parties, there seems to be no possibility of sensible consensus around energy policy.
Anyway, back to the Rebel Six and their political grandstanding.
As we noted when Team Morrison racked its divestment legislation in February rather than risk losing another vote in the Parliament, the withdrawal was arguably the high point of Taylor’s ministerial tenure.
Tactics rather than strategy
Nothing that has happened since then changes that position. The government has continued to pursue tactics rather than strategy. It has delivered the Australian Energy Regulator the task of setting a series of default retail-market power prices and forced reviews of investment intentions up and down the east coast by proposing an investment of $1.38 billion in the $4.8 billion Snowy 2.0 project and by endorsing new inter-connectors between NSW and South Australia and between Victoria and Tasmania.
The business case for those projects is opaque at best, dubious at worst. But the political optics are good. So bugger the expense and potential future waste, let’s crack on with a bit of nation building and repeat the errors of the NBN.
Meanwhile, the QCA is working through the relentlessly boring process of setting regional power prices for the next financial year. The aforementioned 2019-20 draft determination flags a 4.1 per cent decrease for a typical customer in the main residential tariff and a 7.2 per cent cut for a similarly typical customer in the main small-business tariff.
The QCA process includes a series of community workshops in regional cities that would be familiar to the Rebel Six and which start on March 18 in Bundaberg, on the Queensland coast. Might be useful for everyone to pop along and get their heads around how this stuff all works.
Just how the QCA process intersects with the federal government’s default pricing regime will be interesting to watch. It is far from clear what happens if the QCA price falls outside of the recommendations made by the AER. Victoria faces similar issues with its standard price contract regime.
The oddest thing about this act of futility by the Rebel Six is that they purport to be inspired to action by gouging by their greedy, coal-hating state Labor government. And yet their answer is to promote an already abandoned piece of legislation that would arm a future federal Labor government that holds similarly definitive prejudices against coal with unprecedented powers to intervene in power markets.
Go figure.
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