Rising electricity and gas prices

Hansard: 5 December 2007 ASSEMBLY

Energy: prices

Mr CLARK (Box Hill) — I grieve for the soaring gas and electricity prices with which the Victorian public is being hit — increases made much worse than they need to be because of the failures of the Bracks and Brumby governments. Recently Victorian consumers have been hit with regulated retail price increases of up to 17 per cent.

The Age newspaper reported on Friday, 30 November, that the increases mean that a typical household consuming 6500 kilowatt hours of peak and off-peak electricity can expect its annual bills to rise from about $945 to $1106, an increase of $161, and that larger families living in bigger houses can expect to pay up to $200 more. The Herald Sun of Saturday, 1 December, reported that the power price surge will mean that a large family living in an all-electric house will have to find at least $220 more in their annual budgets.

The Herald Sun points out that higher energy bills will put greater strain on household budgets that are already stretched. It reports that Victoria’s energy retailers warn that above-inflation increases will become the norm as the cost of emission trading schemes flow through to domestic bills. The article reports St Vincent de Paul Society energy analyst Gavin Dufty as saying that the price of Kyoto could be as much as $200 a year on the average energy bill. That analysis by the St Vincent de Paul Society also revealed that low-use customers of AGL gas will pay between 20 per cent and 25 per cent more for winter heating and that many country customers will face off-peak electricity increases of 20 per cent — almost double the peak rate rise.

These increases come despite the assurances that were being given to Victorians as recently as May this year by the Minister for Energy and Resources in the other place that they had nothing to worry about and that the price increases they would face would be less than double digits.

Indeed the minister told the Public Accounts and Estimates Committee hearing on 16 May:

So I would be surprised — I would be disappointed — if price increases in Victoria got into double-digit figures …

So much for the minister’s assurances. Victorians are entitled to be very disappointed indeed in the Bracks and Brumby governments now that, despite the minister’s assurances, they have been hit with these massive price increases. At the time the minister tried to tell us that Victoria was doing much better than other states. He claimed, for example, that the increases in Queensland would be around 10 per cent next year. As it happens, the Age of 30 November reported that increases in Queensland have been around 7 per cent, compared with the increases of up to 17 per cent here in Victoria. Not only have Victoria’s increases been much higher than the minister assured us they would be, but they have also been much higher than increases in other states such as Queensland and, apparently, New South Wales.

In part these increases are due to the drought conditions that Victoria and most other parts of Australia are suffering, but the increases have been made much worse than they needed to be by a range of failures by the Bracks and Brumby governments. Most striking of all is the government’s failure on the issue of demand response, which is sometimes called ‘demand management’. At its best it should be about empowering consumers to make usage decisions based on the true costs involved and about providing opportunities to consumers to make savings when they do what is both good for them and good for the community as a whole by reducing their consumption of electricity at times of peak demand.

This is particularly important in the context of the current power price increases, because the main driver of the current increases has been rising power prices at times of intermediate and particularly peak demand, such as hot summer afternoons, which produce huge spikes in electricity prices.

At those times you can have the wholesale price, which may be around $40 a megawatt hour at normal times, soaring up to the market limit of $10 000 a megawatt hour. These very concentrated and huge increases in price at peak periods are what is dragging up the across-the-board average price.

The reason that this links into drought is that hydroelectricity is one of the main sources of peak electric power. The drought means that less hydroelectricity is available, so there is less capacity to meet those demand peaks. That makes it particularly important that consumers are empowered through proper demand-response mechanisms. What is striking is that this was recognised in principle by the Bracks government as far back as 2002, if not earlier. But having run the flag up the pole and proclaimed the importance of the issue, it failed to properly act to do anything effective in the intervening years.

In 2002 in a policy document issued by the then minister in the other place, Candy Broad, entitled Energy for Victoria, the government said at page 16:

Demand side management (DSM) includes peak demand reduction, energy efficiency, and the use of cogeneration and stand-by supplies. It can contribute to supply security by reducing the size of Victoria’s peak and overall demands.

The government has given a statutory role to VENCorp to facilitate demand management.
It should be put on the record that the demand management role given to VENCorp was removed from the legislation earlier this year because VENCorp had not done anything effective with it.

Whether that power should have been given to VENCorp in the first place or whether other things should have been done is a moot point. The critical and unavoidable point is that the government, having said, ‘Yes, demand side is important, and yes, we are going to do something about it’, has done nothing effective at all. In particular what it has failed to do is provide for the availability of smart meters — otherwise known as interval meters — to consumers.

The reason these are important is that they measure the consumption of electricity by household, business and industrial consumers in intervals of, say, half an hour, which means that the prices that are charged for electricity can be varied very effectively between peak and off peak and indeed according to the wholesale price prevailing at any particular time if the consumer and retailer reach agreement on such a package.

These meters can also include communications so that there can be automatic mechanisms built in for scaling back use of appliances depending on prices that prevail at the time.

We had the bizarre spectacle when the Minister for Energy and Resources went out the other day to tell Victorians the news about the 17 per cent price increases of him saying, when asked what people can do about it, that they could turn down their air conditioners at times of peak demand. If the minister and his predecessors had got on with what was identified, planned and initiated under the Kennett government — namely, the deployment of interval meters — then all of this could have been in place. Interval meters could have the communication smarts built into them.

The change in temperature of air conditioners could be varied depending on what is programmed via the interval meter, or indeed, as is being trialled in South
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Australia, the compressor motor could be turned off at various times which are rotated among different customers. Each customer might have the compressor turned off for just a few minutes in any half-hour period, but the overall aggregated and coordinated effect is to lower the demand peak. There is so much that could have been done in properly managing demand response had the government got its act together. It has failed to do so.
Another significant failure of the Bracks and Brumby governments that has been driving up energy prices in Victoria has been the role of industrial disputes in adding to the costs of and deterring investment in power generation plants. In particular there was notoriously the experience of delays and cost blow-outs at the Somerton and Laverton gas-fired plants which sent a signal to potential investors in generating plant in Victoria to be very cautious indeed. That does not mean investment is not taking place at all.

It is, but it is very slow — far slower than it needed to be, because investors need a higher rate of return than otherwise required to overcome the drag of cost and delay from industrial disputation.

On top of that we have had the failure to properly plan for gas pipeline expansions, which I raised in the house yesterday. That is perhaps just the latest in a series of poor management decisions and responses by the government which contribute to an overall assessment by many in the industry in Victoria that when it comes to detail and actually getting changes and programs rolled out and implemented, the Bracks and Brumby governments have been very badly lacking. They have relied for the big picture on the reform framework established by the Kennett government, which they denigrated at the time but are now extolling the virtues of, but the detailed implementation is lost on them.

Although they have one or two key staff members of some ability in senior ranks within the department, they have lost many able staff members at lower levels, and that has contributed to the problem.

We have seen mismanagement from the time the government came to office to recent days. We remember that in the 1999-2000 summer our state was hit with unscheduled blackouts across our suburbs due to power shortages, whereas at the same time in South Australia the crisis was properly managed and unscheduled blackouts were avoided. But the government failed to learn the lessons of that, and just last summer again we saw unscheduled blackouts because of the lack of an emergency power reduction framework when there was the tripping of an interstate transmission line. VENCorp ducked for cover on that issue, but VENCorp, under the state government’s control, is the body that should have primary responsibility for that sort of emergency supply response. It and its political masters have been found wanting.

The problems have also been added to by the focus of the Bracks and Brumby governments on spin and media opportunities over substance. We have seen that with the Victorian renewable energy target scheme, the brainchild of the former and unlamented Deputy Premier which the current Minister for Energy and Resources signalled in the house yesterday the government is now trying to look at unwinding, given that it is going to be superseded by a national scheme. We have similarly seen with the Victorian energy efficiency target scheme that was debated in this house recently that many issues of detail that were raised on this side of the house still need to be resolved.

There is much more to come. Federal Labor has come to office on a platform of the rapid introduction of an emissions trading scheme, but honourable members may be interested to know that when one searches for the Labor Party policy document on emissions trading, there is none.

This is a centrepiece of federal Labor’s election policy, yet the most detailed statement that can be found in writing is a speech made by Kevin Rudd to the Belconnen Labor Club on 30 May 2007. There is no policy document explaining how federal Labor will deploy an emissions trading scheme. The very sketchy details are set out in just three pages of the speech. So the Victorian minister had a heck of a nerve to tell this house yesterday that federal Labor would simply be filling in the fine details, as he put it, of policy work that has already been done.

Labor governments, both state and federal, have been great on posturing about emissions trading, but they have done nothing more than set a broad-brush framework, and there is an enormous amount of work to be done. Billions of dollars of cost and revenue are involved in an emissions trading scheme, and this is something that is very frightening when it is being tackled by inexperienced state and federal Labor governments.