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GRC Professional : GRC Summer 2013
23 Generators and retailers can exist in a competitive environment, but there is only one set of wires and poles, or networks. necessary, but splitting these out was difficult," said Wood. "The sector had healthy competition in generation and retail, and Victoria had successfully privatised much of its industry, but the settings for the network businesses were poised for a problem, and that is what we got. "Prices began to move up very sharply as a result of the infrastructure upgrade costs and higher allowed financing costs," Wood said. Two state governments --- NSW and Queensla nd --- were over-reacting and imposing unnecessarily high reliability standards, and the rules the regulator was given to work with were not as tight as they needed to be. "These costs have been responsible for more than half of the final cost to consumers." Malcolm Roberts, CEO of Energy Networks Australia (ENA -- the peak national body representing ga s and electricity distribution businesses throughout Australia), agrees that prices are rising as a result of a perfect storm of various factors. One, the cost of capital has risen in the electricity industr y since the GFC. "Major investors pay a premiu m to bor row funds for long-term assets," Roberts says. "At the same time they're ser vicing rising costs of debt on their old assets. There was a great deal of investment in wires and poles in the sixties X Industry overhaul needed A draft report by the Productivity Commission, Electricity Network Regulation Frameworks, released in October 2012, has found that regulation and ownership arrangements for electricity networks require an overhaul. The commission is seeking public feedback on its proposals for a final report to be delivered to the federal government in April. Key proposals • A phased introduction of more cost-based pricing, combined with smart technologies to cut network costs to end the large hidden subsidies, often from lower income households, to people who use a lot of power at peak times. A few periods of peak demand --- mostly in summer --- require large amounts of infrastructure. • The creation of a new industry-funded consumer body, with enough expertise to contribute to regulatory determinations and merit reviews. • A national, consumer-focused approach to reliability standards to end costly investments in order to achieve a much higher level of reliability than consumers would other wise choose. • All state-owned network businesses be privatised (but remain strongly regulated ) to avoid the conflicting mix of state government influences on their corporations.
GRC Spring 2012
GRC Autumn 2013