Farmers lead with plan to fix electricity mess

Farming lobby group CANEGROWERS has put forward a five-point plan to fix the mess that is electricity pricing in Australia.

“The current system contains incentives for wasteful over-investment in network capacity and under-investment in base load generation capacity,” CANEGROWERS CEO Dan Galligan said. “It’s a situation that has driven Australian electricity prices up to be among the most expensive in the OECD.

“Unnecessarily high electricity prices are a hidden tax on business which each year nets the Queensland Government around $1.5 billion in dividends, income tax equivalent payments and interest charges.

“While governments appear to be struggling for a solution, the way forward is actually simple if governments, energy regulators and energy companies are genuinely committed to an electricity generating and distribution system that efficiently, sustainably and affordably delivers electricity to enable a growing economy.”

The foundation of CANEGROWERS five-point plan, as outlined in its submission to the Independent Review into the Future Security of the National Electricity Market being chaired by Chief Scientist Dr Alan Finkel, is a fair and competitive pricing system based on good market discipline.

“Prices and tariffs should provide performance incentives, encourage reductions in cost across the supply chain and enable electricity users to remain internationally competitive, electricity businesses must bear the consequences of their investment decisions,” Mr Galligan said. 

The first step in the CANEGROWERS plan is for the Council of Australian Governments’ Energy Council to commission an independent assessment of the economy-wide costs and benefits of the current unsustainably high electricity prices.

“Our members, the sugarcane growers of Queensland, have faced electricity price rises of 120% in the past seven years and we are just one industry of many feeling this pain,” Mr Galligan said.

“On the other side of the ledger, the Queensland Government, taking advantage of unrealistically high asset valuations, has saddled Energy Queensland with debt shifted from its own balance sheet.”

The second step is to optimise the regulated asset base (RAB) by writing down the value of non-performing and under-used assets as required of all other businesses by international accounting standards. This would require the networks to face the consequences of their own investment decisions.

“These fundamental market disciplines were lifted from electricity networks in 2006 and since then, prices have spiralled out of control,” Mr Galligan said.

“Regulations that have shielded the networks from the consequences of their poor decisions have stifled innovation, promoted inefficiency and driven costs higher.  The system is broken.

“Governments should not be surprised that monopoly businesses will take advantage of poorly designed regulations and weak regulators to behave like the monopolies they are, pushing up prices to gouge extraordinary profits,” he said.

“It will take decisive action, like the plan we are proposing, to halt this situation and sort out this mess for the benefit of all Australians.”

CANEGROWERS’ five-point plan to fix the electricity pricing mess:

• COAG – Reinstate pre-2006 rules that require the optimisation of the electricity Regulated Asset Base and require network owners to face the risks of their decisions.
• COAG – Redesign network tariffs to ensure that irrigators and other businesses in non-congested parts of the network are not required to meet congestion costs in other parts of the network.
• COAG – Review the governance structures in Australia’s electricity regulatory oversight framework to ensure it is working efficiently and effectively for the long-term benefit of the Australian economy.
• Queensland Government – Reinstate local distribution grids to identify opportunities to increase efficiency, reduce costs and lower prices by ensuring the level of service provided matches local needs and circumstances.
• Ergon – Re‐submit its most recent tariff proposal so that it contains fair pricing which does not put an unnecessary cost burden on Queensland energy users.