E LECTRICITY C ASE S TUDY Carolyn Hodge Independent Energy Consumer - - PowerPoint PPT Presentation

PRIVATISATION ELECTRICITY CASE STUDY

Carolyn Hodge Independent Energy Consumer Consultant carolynhodge14@gmail.com

THIS PRESENTATION

 Lease of the NSW Electricity Networks  Why this is important for everyday people  Public & Private ownership  The privatisation of electricity retailers and

generation output in 2011

 How this could impact on the current processes

ELECTRICITY SUPPLY CHAIN

Source: Australian Energy Market Operator

Transgrid Essential Energy Endeavour Energy Ausgrid

THE NSW GOVERNMENT IS SEEKING A MANDATE

AT THE NSW ELECTION FOR THEIR PROPOSAL TO:

 Lease of 49% of the electricity networks  Retain state-ownership of 51%  Retain state-ownership of Essential Energy (the

network that serves rural & regional NSW) The Government has set up a scoping study to work

• ut the details of the lease including;

 A retention value under which the assets will not be

leased

 The proportion of assets to be leased to reach 49%

WHY IS THIS IMPORTANT TO PEOPLE IN NSW?

Network 52% Carbon 7% Retail 10% Wholesale 23% Green 8%

Make-up of prices paid by consumers

Data Source: AER State of the Energy Market, 2013, 128.

WHY IS THIS IMPORTANT TO PEOPLE IN NSW?

Source: Australian Energy Regulator: State of the Energy Market, 2014, 136.

ELECTRICITY PRICE RISES SINCE 2009/10

Network supply Area 2009/10 % 2010/11 % 2011/12 % 2012/13 % 2013/14 % Average Annual Bill $ Ausgrid 21.7 10 17.9 20.6 3.9 2106 Endeavour Energy 21.1 7 15.5 11.8 1.6 2044 Essential Energy 17.9 13 18.1 19.7

• 0.6

2725 Table 1: Movements in regulated and standing offer electricity prices

Source: AER State of the Energy Market 2013, 130.

ELECTRICITY DISCONNECTIONS NSW FOR

INABILITY TO PAY

Year 2009/10 2010/11 2011/12 2012/13 2013/14 Q1 2013/14 Q2 2013/14 Q3 2013/14 Subtotal 15,835 18,561 23,207 24,888 9007 8004 8849 25,900

Source: AER, NSW-residential electricity customer disconnections h ttps://www.aer.gov.au/node/23435

PRIVATE & PUBLIC OWNERSHIP OF ESSENTIAL SERVICES

 What do you think?

Pros Cons

PRICES

 Network prices are set by the regulator under

National Electricity Law and National Electricity Rules

 This does not change due to ownership

THE PUBLIC INTEREST

 Under the State-Owned Corporations Act 1989

(NSW), the portfolio minister can, with the approval

• f the Treasurer, direct the businesses on certain

matters including public interest, public sector policies and non-commercial activities.

 See: State-owned Corporations Act 1989 (NSW),

sections 20N, 20O and 20P respectively.

ARE PRICES HIGHER UNDER PRIVATE

OWNERSHIP?

Network 52% Carbon

7% Retail 10% Whole sale 23% Green 8% NSW Network 36% Whole sale & Retail 52% Carbon 8% Green 4%

Victoria

Prices 2013/2014 year. Source AER State of the Energy Market 2013.

EFFICIENCY

ACCESS TO CAPITAL

Please note this diagram is for illustrative purposes only and rates shown are not actual

PRIVATISATION CAN CAUSE PROBLEMS WHEN THE

PRINCIPAL OBJECTIVE IS TO MAXIMISE SALE PROCEEDS THROUGH, SAY, POOR INDUSTRY STRUCTURES OR INADEQUATE REGULATION; THE IMMEDIATE FINANCIAL BENEFIT COMES AT A COST OF AN EFFECTIVE ”TAX” ON FUTURE GENERATIONS.

ROD SIMS, CHAIR OF THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION, SPEECH TO REGULATING FOR EFFICIENT INFRASTRUCTURE OUTCOMES, SPEECH TO THE

ACCC/AER REGULATORY CONFERENCE, AUGUST 2014.

HTTPS://WWW.ACCC.GOV.AU/SPEECH/REGULATING-FOR-EFFICIENT-INFRASTRUCTURE-OUTCOMES

WHAT CAN WE LEARN FROM PREVIOUS

PRIVATISATION PROCESSES?

WHAT WAS PRIVATISED?

 The three state-owned electricity retailers  Country Energy  Integral Energy  Energy Australia  The output of the Eraring Energy and Delta West

Generators

WHAT HAPPENED TO THE RETAILERS?

 The new owners also bought the names  The network arms of the businesses which remained

under state-ownership had to change their names

 Country Energy Network became Essential Energy  Integral Energy Network became Endeavour Energy  Energy Australia Network became Ausgrid

RETAILERS

 In 2011:

 the sale of the retailers realised a $3.082

billion profit

 the vendors received $380 million for

transaction costs

Source NSW Auditor-General’s Report Volume 4, 2011, Electricity Industry Overview, 7 & 8.

In 2014, the networks outlined over $200 million for costs resulting from loss of synergies

Source Ausgrid’s Regulatory Proposal, 2014, 50 and 57. Endeavour Energy Regulatory Proposal – 1 July 2015 to 30 June 2019, 91 and 77. Essential Energy, Essential Energy Regulatory Proposal 1 July 2014-30 June 2019, 2014, 77. * Please note, Loss of synergy costs for Essential Energy also include costs arising from the sale of the Wagga Wagga gas network to Envestra. See page 76 of Essential Energy’s Regulatory Proposal 2014.

Loss of Synergies $ million Efficiency Offsets $ million impact remaining $ million Ausgrid $64.1 million $38.6 million $26.4 million Endeavour $59.4 million $59.4 million $0 Essential $117 million* $113 million $4 million Total $240.5 million $211.0 $30.4 million

GENERATOR OUTPUT SALE

In 2011:

 the sale of the generation output realised a

loss of $1.233 billion

 Origin Limited bought the output of power

stations at Eraring and Shoalhaven.

 TRUenergy Pty Ltd bought the output of Mt

Piper and Wallerawang power stations.

Source NSW Auditor-General’s Report Volume 4, 2011, Electricity Industry Overview, 7 & 8.

GENTRADER ARRANGEMENTS

 The Gentrader arrangements included Available

Liquidity Damages (ALDs)

 ALDs allowed the Gentrader to receive a fee where the

generator did not achieve ‘contracted availability targets.’

 These damages were the subject of an annual cap;

however they have reached significant amounts.

 For example, Eraring Energy incurred ‘net liquidated

damages …of around $2 million in the period between 27 February 2011 and 30 June 2011.’



Source: NSW Auditor-General’s Report Volume 4, 2011,Eraring Energy, 47.

PERHAPS IT ISN’T WHAT YOU DO BUT HOW YOU DO IT

 In 2011, the NSW Auditor General reported the overall profit

from the sale was $1.233 billion.

 In 2014, the NSW Government Budget Papers stated,

Over the course of 2013-14, all residual aspects of the electricity Gentrader arrangements were divested, saving the State an estimated $2 billion through avoided Availability Liquidated Damages liabilities over the life of the previous contracts, and the removal of the obligation to develop and

• perate a coal mine at Cobbora.

NSW Government, Budget Statement, Budget Paper Number 2, 2014-15, Chapter 9, 2014, 4.

STILL INTERESTED??

 NCOSS will be hosting a workshop on the

Investigating the proposed lease of the NSW Networks from an electricity consumer point of view

  Friday 12 December 2014 from 9.30-12.30pm  Venue will be Sydney CBD  Contact Rhiannon Cook at NCOSS for further

details rhiannon@ncoss.org.au

DISCLAIMER

This presentation is for general information purposes

• nly. It is not intended as advice on any particular

matter or legal question.