Newman's cash grab on energy assets will end as a tax on consumers | RenewEconomy

Newman’s cash grab on energy assets will end as a tax on consumers

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Whether the Newman government sells or leases Queensland’s electricity assets, the future costs to consumers will ultimately outstrip any instant benefits.

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networkWhether the Newman government sells or leases Queensland’s assets, particularly those involved in the generation and distribution of electricity, the future costs to taxpayers will ultimately outstrip any instant benefit in relief from the government’s current debt levels.

The simple reason is this, NO-ONE will invest a red cent into a business that has a deteriorating financial outlook. The only exception to this might be T2 investors (Telstra), who were either misled, or had more money than sense.

Firstly, let’s look at Energex retail, sold off in 2007 to Origin and AGL. These purchasers bought billing rights at a cost of $1,500.00 per customer. There was no exclusivity to these customers in an openly competitive market and therefore these companies could only lose customers, not gain customers except from each other. The retailer margin at this time was around four cents per kilowatt hour, which offered a sensible return on investment.

Seven years later and one of the least competitive retailers is Origin. The reason? There is no need for Origin to use their small margins to increase turnover because there is no point. Commercial viability and profitability has been guaranteed by legislation that was put in place to protect commercial enterprises from having to perform efficiently and competitively under the guise of essential services.

The four cent margin that existed when Origin took on these customers has now been stretched out to eight cents, with four of those cents guaranteed by legislation as a legitimate distribution expense. This is absurd. A commercial entity is guaranteed a retainer and can use the other margin they have to either compete or assign to profits, either way income is assured. If the government enjoyed the same framework and still had the asset they would be rolling in money.

The first casualty of these sales will be efficiency and competition. Queenslanders are already paying ever increasing network charges – even though network expansion has been substantially halted by summer peak-busting solar PV. There is absolutely no way that once these assets are sold off , that the purchasers will stand back and allow legislation to degrade the revenue models the purchase was based on.

You can guarantee the government (the taxpayer) will be slugged with new revenue protective regulations and straight out compensation payments to these investors should renewables continue to be allowed to thrive and these entities fade further.

This terrible policy direction can only be described as a desperate grab for money by governments who are desperate to hold onto popular votes and do not have the leadership credentials to simply raise taxes, either temporarily or permanently and explain the necessity for having to do so to a reasonably intelligent population.

Rob Campbell is CEO of Vulcan Energy

 

 

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7 Comments
  1. barrie harrop 6 years ago

    Just consider the history when Sth Aust Govt sold off the poles/wires we ended up with the Countries highest energy costs–and a lack of investment is base load power.

    • michael 6 years ago

      didnt’ I read on these pages south australia has the highest penetration of wind power in australia? and that we have overinvested in base load power across the country

      • barrie harrop 6 years ago

        Yes good point what SA needs now is a green grid to cope with renewables,expect existing operators have no interest here.

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  2. Warwick 6 years ago

    This article has a few errors. Firstly, Energex retail became Sun Retail and was sold only to Origin not to AGL, which bought the non-franchise Ergon Energy customers.

    Just what legislation is referred to when “Commercial viability and profitability has been guaranteed by legislation..” is stated? Retailers in Queensland can charge up to the maximum retail price, no more.

    The following line is curious “The four cent margin that existed when Origin took on these customers has now been stretched out to eight cents, with four of those cents guaranteed by legislation as a legitimate distribution expense.”….So it’s still four cents? If it is eight cents, then isn’t an invite for more retailers to enter the market?

    This statement ” A commercial entity is guaranteed a retainer and can use the other margin they have to either compete or assign to profits, either way income is assured.” is incorrect as retailers face market price and volume risk…their income is not guaranteed.

    Finally, it’s also a bit rich to blame the networks for increasing charges when the Feed In Tariff for PV has been a large part of the problem..I suggest you note the following from the QCA “The scheme’s impact on network tariffs is expected to peak in 2015–16, at which time about 34% of Energex’s network prices will be due to the SBS.” (http://www.qca.org.au/getattachment/25696fbc-b4ed-42c4-8d16-fd3efddb563e/Final-Determination.aspx)

    I think some common sense needs to enter the debate…

    • Rob Campbell 6 years ago

      The info I have is that Energex’s customers on the Nth Coast went to AGL.
      My point on commercial viability is premised on the fact that the ACA maximum price is a result of price increases put forth by N.E.R. One of those recognises customer acquisition and retention costs as a pass through network cost – a load of rubbish!
      Yes the FIT is a recovery tax and should not form part of electricity bills. I challenge you to demonstrate a reduction in network charges after the peak in solar bonus payments has occurred. They will find another cost, skewed to favour returns to the network owners, whether they remain state or are sold/leased off. Imagine if these assets are leased for the sole reason that it is the only way the government can levy a service charge even if you are off grid but have power lines running past your door.

      • Warwick 6 years ago

        I’m not sure where your info is from but the “franchise” customers below 100MWh/pa were split along Ergon and Energex networks, so Energex is SEQ up to about Gympie.

        The point that should be considered is not really how the costs are calculated by regulators as they will invariably be wrong, rather that it is a maximum price. It does actually cost money to acquire a customer, whether through a trade purchase such as Origin or by telesales, annoying doorknockers or through advertising as well as the admin costs in this process. This cost will reasonable need to be amortised over the expected life of the customer relationship be it 2, 3 or 5 years. These are not network costs and are not considered as such and if your costs are lower then you may compete more effectively. I assume advertising is part of your customer acquisition cost and you claim it as part of your business expense?

        If the retailers are making too much profit, there is an opportunity for others such as Energy Australia to enter the market.

        So if the costs are the “same whether or not they are sold/leased off ” then why does it matter who owns them? I’m not quite sure why the only way I can “Imagine if these assets are leased for the sole reason that it is the only way the government can levy a service charge”…why can’t they levy a charge whilst they still own it.

        I see that you don’t wish the QLD government to sell the networks and there may be legitimate reasons to hold that point of view but I don’t see that claims about retailer profits and the way that the Solar bonus Scheme are paid for have much to do with the issue…

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