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Report calls for more Australian electricity reform

20 March, 2002 – A report issued Wednesday by Access Economics into reform of the Australian electricity market concludes that another A$1bn ($517m) of potential benefit to the economy could be achieved if the process is finished and obstacles at state level are overcome.

The report argues that electricity market reform has delivered important cost saving to Australian industry and helped it ride out Asia’s meltdown but that the impetus has been lost with the risk of a separation into regional markets.

Electricity reform has been a key driver for Australia’s economic growth and international competitiveness over the past decade, and the country can’t afford a bout of reform fatigue, Access said in its Economics Monitor report for March.

But the market, which presently comprises Victoria, New South Wales, South Australia and Queensland states, is only partly privatized, says Access, and is being hurt by local lawmakers focusing on local issues. It believes more drive from federal lawmakers is needed.

“For instance, if a company wants to be in the electricity business in Queensland it needs to deal with nine different regulatory entities,” it said.

“If it wants to operate in Victoria there are eight, and if the company operates in both it has regulatory relationships with at least 12 agencies,” it said.

The price of electricity has a profound impact on some industries. It accounts for seven per cent of production costs for the non-ferrous metals sector and takes a major bite from the revenues of cement, pulp and paper, black coal and glass producers, Access said.

It is estimated that electricity market reform has cost 50 000 jobs in the industry but, says Access, has given local industries, which use nearly three-quarters of all electricity generated here, cost advantages over foreign competitors.

It also said 50 new jobs were created in other industries for every electricity job lost to reform.

Access said reform had so far concentrated on the supply of electricity, although more was needed to properly connect the transmission and distribution grids for New South Wales, the Australian Capital Territory, Victoria, Queensland and South Australia.

While full retail contestability allowed New South Wales and Victorian consumers to choose suppliers from other states – South Australians get choice from January 2003 – the Queensland government has cut choice to its consumers, Access said.

“There is an overwhelming case to give Queensland a swift kick in the behind (by cutting its competition payment when the National Competition Council next assesses state claims under the National Competition Agreement),” the report said. “Anything else would give (another) strong sign that federal politicians are falling victim to the same reform fatigue gripping the states.”

Access also said states should quickly agree on a universal billing method so consumers can be billed with the same level of precision in each state.

It also called for a national regulator to replace the 22 existing state and federal regulators.