Tasmanian Electricity Reform: Wretched reform or necessary change?

Session one - Response to the reform package

Tasmania's electricity reform package is a "wretched" package that "snuffs out competition" and does not encourage retailers to market, Frontier Economics, Founder and Managing Director, Danny Price, has told a CEDA audience in Hobart.

Mr Price said the reforms are a complete reversal of where Tasmania was heading and they will deliver less competition in a state that already lacks competition.

"What the Government proposes to do is to dismember the only potential competitor to Hydro Tasmania- Aurora through Tamar Valley," he said.

"They now have to put in place a whole range of regulatory arrangements to try and mitigate that power.

"Hydro Tasmania can set the price at whatever level they want. They choose not to, but that doesn't necessarily mean that it's a competitive market."

"Businesses will invest in any market where they think they will get a decent return on a fair basis."

Businesses can manage the cut and thrust of the market, but they can't manage the regulatory risks, he said.

Under the new reforms, Tasmanians will be worse off, Hydro Tasmania will be better off and retailers won't come to market, he said.

"The reason retailers won't come, or won't come at a reasonable price…is because there is no basis on which they can compete," he said.

"Regulation has never, will never, deliver sustainable long-term benefits to consumers, except under some very precise set of circumstances.

"My recommendation, to both the Government and to the Greens, is it would be better to do nothing at all than to adopt these changes."

Energy Users Association of Australia, Executive Director, Roman Domanski said the reforms were not what the Tasmanian Government says it wants and not what Tasmania needs.

The Tasmanian Government's response has been timid on longer term electricity issues for the state, he said.

Mr Domanski said more sustainable and fundamental reforms are needed to deliver ongoing benefits and the Energy Users Association of Australia (EUAA) wants to work with the Tasmanian Government to see if reforms can deliver some gains.

On pricing, Mr Domanski said Tasmania was ranked 11^th based a EUAA report comparing international electricity prices.

The Tasmania electricity prices escalated in 2008, and we have seen a massive divergence from the Consumer Price Index (CPI), he said.

The causes of the price increases were attributed to 38 per cent wholesale, 25 per cent network, 17 per cent carbon, 11 per cent Renewable Energy Target and nine per cent for retail, he said.

Mr Domanski said while the short-term actions are a welcome step to help reduce price pressures immediately, the long-term structural reforms are contrary to what the panel recommended in a number of areas, and their recommendation that the whole package needs to be implemented for full impact.

I have difficulty in reconciling how that is going to benefit Tasmanians and fear this will be a bridge not far enough, he said.

Session Two - Response from industry

Aurora Energy, Chief Executive Officer, Dr Peter Davis said the status quo was not sustainable nor in the best interests of Tasmania's electricity customers.

Dr Davis said Aurora will be the company affected the most by the reforms, and from their perspective the reforms are not timid at all.

Aurora supports and will continue to work with the Tasmanian Government to implement the reforms, he said.

On pricing he said: "While no one is happy with the increase in electricity prices, the reality is it is a national phenomenon."

"Public comments, about the price rises due to mismanagement or inefficiencies on behalf of the industry, has led to a decline in confidence in the industry.

"Effectively, we've reduced our costs by about 20 per cent over the past two years or $88m in total operating costs.

"We share the public concern that existed about the declining affordability of electricity.

"We've been a significant supporter of reform to the Tasmanian energy industry.

"We actually agreed with the vast majority of submissions to the expert panel that wholesale energy reform needed to be a prerequisite to retail reform."

Hydro Tasmania, Chief Executive Officer, Roy Adair said wholesale electricity prices are already unsustainably low and the Tasmanian Government's reforms are trying to improve competition.

"These recommendations will place Tasmania ahead of many states within the National Electricity Market, certainly NSW and QLD," he said.

"I believe the Government is to be commended on the way it has taken the panel's recommendations.

"It's not just about the latest, pure system of competition, it is ensuring we have a safe, secure, reliable electricity market in place, that is also delivering competitively based prices.

"I believe the plan that the Government has does do that."

The value of the emissions and emissions abatement has not been recognised until 1 July 2012.

Mr Adair said there is no reason retailers won't come to market with the new reforms if:

• Contracts are available;
• The pricing process is transparent; and
• All retailers are treated equally.

Energy Retailers Association of Australia, Chief Executive Officer, Cameron O'Reilly said Australia is experienced in contestable energy retail markets and Australian's embrace choice and switch electricity retailers.

"Our retailers have the best, probably global, experience in dealing with customer switching," he said.

"The reality is that the market in Australia …is by far the most competitive."

However, Mr O'Reily warned: "Do not sell FRC (Full Retail Contestability) to the public, on the basis of low prices."

"The reality is that retail prices are overwhelmingly determined by generation cost and particularly now, by network costs.

"What really needs to be sold to Tasmanians is that FRC is really about choice, and if there are more contestable options here and the market conditions are right they will have choice.

"As far as I'm concerned, more choice, more retailers makes for a more responsive industry and that's a good thing for Tasmanians."

Keynote Address

Tasmanian Deputy Premier and Minister for Energy and Resources the Bryan Green said when talking about Tasmania's energy future it was important to recognise that the expert panel did say that the status quo was not an option.

"It's alright to come up with lots of purist theoretical models, when it comes to energy businesses…but we have to make decisions in the best interests of the state overall," he said.

Mr Green said that the Government was focusing its objectives around:

• Price;
• Secure, reliable supplies of energy;
• Maximising the value of the State's natural resources; and
• Ensuring that we have strong state owned electricity businesses that are financially viable and run efficiently.

The Government is also considering the cost, risk, timeliness and complexity associated with the implementation of any change, he said.

"We want to be in position to declare full retail competition for households and small businesses across the state," he said.

"We've deferred making that decision in the past because we didn't think the market here was mature enough and/or structured properly to ensure that those reforms could come forward.

"We're working on this reform in that context. We want to ensure now that we have that full competition and we're looking to do that on 1 January 2014."