Garnaut fails to understand the real issues when it comes to electricity

Professor Garnaut has repeated overly simplistic claims made by a group of industrial electricity consumers that used selective analysis and came to dubious conclusions.

Closer examination of these claims reveals:

• Network companies, regardless of ownership, must obtain the approval of the independent umpire – the Australian Energy Regulator (part of the ACCC) – to capital works programs and their operating expenditure budgets according to a set of uniform rules made by the independent Australian Energy Markets Commission;

• Individual States determine on behalf of their communities the level of reliability that networks must achieve. This affects what has to be built and how the networks are to be operated and is not a matter that the companies can ignore;

• Peak load is growing as more Australians install air conditioners and energy hungry appliances. The electricity supply system is required to meet these peaks. Undoubtedly this leads to capital under-utilisation and this is a matter of concern to the whole industry. It is not, however, the fault of the network companies; and

• Reinforcing the interconnectivity of the electricity system has long been seen by many as a way to increase competition and lower energy prices. But successive economically literate policy makers and regulators, including the ACCC, have found that sound economic tests for such augmentation are rarely met. Indeed, had such investments proceeded, consumers would have paid for the upgrades which in all cases would have outweighed any reduction in energy costs.

These are all complex matters and the Governments recognise this and have established expert, independent bodies under the policy guidance of the responsible Commonwealth, State and Territory Ministers.

The established expertise, transparent consulting arrangements and independent decision making processes of the market bodies – AEMC and AER – are well calibrated to address perceived weaknesses and problems in energy markets.

The challenges facing Australia’s energy sector to transform to a lower emissions footing are immense and should not be underestimated. Despite the magnitude of the task, the energy industry can start the transformation to a lower-emissions intensity if the policy settings are sensible and the impairment of assets is appropriately addressed. Given how deeply embedded the energy industry is into modern Australia, every Australian household and business has a stake in getting it right.