No serious authority can deny the price and performance improvement that has taken place in Australia's electricity and gas industries. Since its various entities were competitively unleashed against each other, many being privatised, we have seen prices down by a quarter and productivity more than doubling. We have seen the industries turned upside down from a series of sheltered workshops to a customer oriented set of businesses.
Yet all is not well. The industry still has the glue of regulation and government intervention injected into many cracks and crevices. Governments have created a plague of regulatory agencies to control the industry. And these agencies risk shifting the entrepreneurial activities of the industry's firms from a customer-directed to a regulator-pleasing perspective. Adding all the regulatory agencies together would leave something like one agency for every two active suppliers in the industry. Naming them all in response to a quiz show question would take up the entire program!
At the Commonwealth level, regulatory agencies fall under acronyms that include ACCC, NCC, NECA, AGO and NEMMCO. In addition, all states have their own regulatory agencies -- for Victoria alone, those overseeing the $6 billion electricity industry include ORG, Vencorp, EIO and OCEI.
And none of these agencies, which collectively eat up over $200 million a year, actually produce anything. Instead they provide directions, some of which are necessary, to the producers and sellers of electricity and gas on matters like:
- the prices they may charge,
- their permitted terms of dealing with each other,
- the fuel inputs they must use,
- the safety arrangements they must take, and
- the way they must treat their customers.
To do all this, the regulatory agencies have spawned a plethora of hearings, reports and decisions. For electricity, Victoria's Office of Regulation Review (ORG) alone has produced or caused to be produced some 500 documents, comprising well over a million pages.
Whatever else competition policy has done, it has certainly proved bountiful to the regulatory industry.
Undaunted by the possibility of over-analysis, at the June meeting of the Council of Australian Governments, Energy Ministers decided to establish a three member Independent Review of Energy Market Directions.
The review however has a confusing agenda. One of its terms of reference seeks to identify impediments to the full realisation of benefits of energy market reform; this is code for reducing regulations. Other priority issues are to chase the Kyoto will-of-the-wisp to bring about carbon dioxide emission reductions and to increase the means of encouraging natural gas usage. Neither of these sits comfortably within the electricity market framework, a fundamental feature of which is to avoid favouring gas, coal, wind or any other type of technology.
The review process and the issues it is to address reflects politicians' schizophrenia with regard to electricity and gas.
The more sensible politicians wish to allow the market to operate in the same way as it is does in producing food, cars and hotel accommodation. But many of this view also fear an electoral backlash if things go wrong or prices rise, and wish to keep their hands on the levers.
Others are intrinsically mistrustful of the market. Never having learned the lessons of the past, they want to distort it to operate in favour of specific customers: low income, small business, those in regional areas or whoever else is considered meritorious or politically muscled.
Still others believe in the fantasy of cheap green energy and that people would be better off if they could only be "educated" to need less energy.
Overlaying much of this is the normal state rivalries and the wish of some jurisdictions to advantage their own industry to enable it to win market share in other states.
Finding a path through these priorities won't be easy. This is evidenced by the pedestrian pace of the review's present progress. It was to report within 12 months. Yet, almost four months have passed and the Energy Ministers still can't agree on who is to conduct the review. The Commonwealth has appointed the Chair, ex minister Warwick Parer, who is well-credentialed as a politician and businessman but is no expert on the complexities of the Australian electricity and gas markets. Doubtless, the calling of the Federal election will cause further delay
There is a plethora of reviews underway being conducted by the electricity regulators and the Productivity Commission. The energy market review will therefore find it difficult to locate an unexplored niche. But one such area is the regulatory inconsistency between gas and electricity. Lack of consistency in the regulatory approach to the two energy sources is assuming greater urgency: they are increasingly competing head-to head and gas is a major fuel competing with coal and other sources for the generation of electricity.
Lack of consistency in the treatment of gas pipelines and electricity transmission, means costly distortions. If the review, when it finally gets underway, can harmonise the treatment of gas and electricity, preferably reinstalling the light handed regulation that was originally intended to prevail, it will have performed an invaluable service. But the path to this has numerous potholes and roadblocks.
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