Network gold-plating confirmed, as Senate report slammed as ‘gutless’

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Senate inquiry labelled ‘gutless’ after confirming network ‘gold plating’ had inflated power prices, offering little insight on how to fix the problem.

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Power lines like these are the backbone of the U.S. power grid. Credit: Tau Zero/flickr
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The final report from a Senate inquiry into Australia’s electricity prices has been labelled “gutless,” after it identified network ‘gold plating’ as a major contributor to inflated power prices, but offered few recommendations on how to fix the problem.

Federal Parliament voted to hold the inquiry in October last year, to address concerns that as much as 60 per cent of some household electricity bills – some of which had gone up by as much as $1,000 over the past five years – could be attributed to the cost of adding and maintaining grid infrastructure, like poles and wires.

In its conclusions, the report found that “the revenue and profits enjoyed by the electricity network monopolies” had increased the economic burden on households and “detracted from the profits of businesses operating in the remaining sectors of economy.”

This outcome was made even worse, it said, “if the high network costs are a result of perverse incentives in the regulatory rules that encourage significant investment in an electricity network that may not be used to the same extent in the future.”

It also found that millions of Australians had switched to solar to take control of their power bills, while networks were somehow not expected to bear the risk of inefficient investments or of changing demand.power market broken

It’s a problem that has long been identified by energy market analysts, some of which have proposed  network asset write-downs as the best solution.

According to a newly published report by Carbon and Energy Markets (CME), Write-downs to address the stranded assets of electricity networks in the National Electricity Market, network gold-plating that has added added up to a $14.7 billion premium to asset values for power networks in the years to 2013, has been the biggest cause of soaring electricity prices.

And it found that, with increasing numbers of households installing solar and perhaps storage, consumers left dependent on grid supplied energy would face even higher prices unless network assets could be progressively revalued or written down.

Finding a way to revalue network assets was also a major recommendation of the Senate inquiry, which among its list of 18 recommendations, calls for a further state-led inquiry into the problem, and calls on the Australian Energy Market Commission and the Australian Energy Regulator to review their own roles, guidelines and processes.

But the peak electricity body the Energy Networks Association warned that changing regulation to allow network assets to be written down could result in even higher costs for consumers, with greater regulatory risk.

“Evidence continues to show regulatory risk is the number one concern for energy investors in Australia – and sovereign risk is becoming an increasing focus,” said ENA CEO John Bradley.

“These proposals come when the regulator has not even finished its first round of reviews under the new regime, and the Inquiry itself noted there have been 17 different reviews of energy network regulation since 2010.”

The Committee report also recommended that state and territory governments increase and prioritise efforts to ensure networks are equipped to respond to changes in the energy market, including increased rooftop solar uptake; emerging energy storage and other disruptive technologies; the anticipation of customers going ‘off-grid’; and “the certainty of value destruction as a result of current business models.”

But in a dissenting report added to the Committee’s findings, the Australian Greens – who instigated the Inquiry – said that, much like the Abbott Government’s review into the Renewable Energy Target, the recommendations went against the actual findings of the report.

“Despite hearing compelling, consistent evidence about the depth of the regulatory and institutional failures of the NEM and the inexcusable gouging of consumers,” the committee’s often expressed outrage had “not been converted into recommendations that would prevent its reoccurrence into the future,” the Greens said.

“The report is gutless. I am dissenting from the tone of the whole report which identifies the problems but doesn’t recommend anything be done about it,” said Greens leader Christine Milne.

“Evidence in this inquiry showed that more than half of people’s power bills are wildly inflated network changes. The rules allow the networks to rip off consumers but there is no political will to fix it.”

Renewable energy advocacy group, Solar Citizens, was similarly critical of the Committee’s recommendations, arguing it was a missed opportunity to ease the cost of living pressure on Australian families.

“We had more than 550 Australians make submissions to the inquiry with the overwhelming majority saying they felt they’ve been unfairly treated by the big energy companies,” said Solar Citizens’ Claire O’Rourke.

“It is highly disappointing that most of the recommendations from this inquiry are so weak, with the exception of a recommendation to expedite the Demand Management Incentive scheme that would reward power companies for encouraging consumers to save energy.

“The best way for Australians to lower their electricity bills is to go solar,” said O’Rourke. “The government and big power companies should be working together to help struggling households by protecting solar and renewables for all Australians with a strong Renewable Energy Target.”

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3 Comments
  1. Derrp 4 years ago

    the solution is really simple. force the state governments who made shit investments to wear the depreciation on the assets, and forbid them from passing on the cost to the consumer!

    • Blind Freddy of Cairns 4 years ago

      Brilliant! Yep just get them to write down the assets and pass the costs to…. where, maybe New Zealand?! If they are public assets, sorry but it is either the consumers or the taxpayers who gets the bill. Take your pick. The exception will be NSW, who maybe will sell off 49% of the value of the utility assets, therefore the public purse will maybe better off. I say maybe, because they have to find some sucker who is willing to pay top dollar for an asset that 1. already has a diminishing value 2. is already under attack from all sectors and is being hit hard by the AER 3. is already being hit by declining demand from solar and energy efficiency 4. will be further hit by more disruptive technology i.e. storage. My crystal ball says that NSW will be unpleasantly surprised by how much they can actually get for the assets. It will then be a test of how keen they are to sell them. QLD (where I live) will eventually see the folly of not supporting Campbell’s big plans.

  2. john 4 years ago

    It has been very visible that the projections made for expected demand have not happened.
    The energy efficiency measures adopted by power users has together with a downturn in industry curbed the demand.
    The problem is now an asset with a value of some $45 billion has to be paid for.
    The best course of action is to write down the value of the asset.
    State governments would like to sell these as soon as possible to avoid this action.
    A lot of incorrect statements have been made to hide these facts.
    Now we are on the brink of yet another movement whereby the remaining peak in the evening will be push down by the uptake of solar and storage.
    The energy companies would be best served to get into supply of this equipment to ensure they have a business future as it is becoming apparent that the system that is nearly 100 years old needs to move into a new business area or be stranded.

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