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GRC Professional : GRC Summer 2013
24 GRC Professional • Summer 2013 IN DEPTH and seventies and a lot of this infrastructure has been nearing the end of its life. "At the same time as the spike in cost of capital, we've seen stricter reliability standards set by state governments in NSW and Queensland. Many argue the reliability standard setting has been done in a fairly prescriptive way. But in Queensland this is under review right now --- the networks need greater flexibility." Roberts says 23 per cent of South Australia's annual power consumption, is used in just 23 peak- demand hours. "Networks are being upgraded to cope with those relatively few peak demand hours to meet reliability standards," he says. "This is the 'gold plating' that has been mentioned in the media. It's an easy target, but networks are happy to guarantee power as long as people are happy to pay for it --- and research shows us that most customers are more interested in reliability than savings if the other option is time without power." The good news, Roberts says, is that re-investment in poles and wires has peaked and a new, lower cost of capital is beginning to wash through the system. With reliability standards under review in Queensland, he says the process should provide a less prescriptive and more consultative approach for network operators in the future. Governance failures But specialists say this is not enough. Governance failures that led to the recent dramatic price rises must be resolved. These include those by state gover nments (that some say have acted in self-interest rather than in the interest of their constituents) and Commonwealth and State government legislators, who left the AER hamstrung by a lack of strict rules and teeth. The regulator's intention wa s to look after the interests of consumers, but instead there is an inefficient system that punishes consumers with heavy costs. The Productivity Com mission's report, 'Electricity Network Regulator y Frameworks', released in October 2012, blames spiralling network costs for the price increases. But it says the network businesses should not be blamed for the present inefficiencies. Instead a "fundamental, nationally focused, package of reforms that addresses the major, interlinked regulatory barriers to the efficiency of electricity networks" must be developed. In doing so, the regulator y regime should once again consider its overarching objective to be the long-term interests of electricity consu mers, the report says. The Productivity Commission also argues that state-ow ned network businesses should be privatised, as most of the evidence appears to Prices began to move up very sharply as a result of the infrastructure upgrade costs and higher allowed financing costs.
GRC Spring 2012
GRC Autumn 2013