Queensland Productivity Commission - Electricity Pricing Inquiry

by Energy Action | Feb 19, 2016
The Queensland Government has asked the Queensland Productivity Commission to examine electricity pricing in Queensland and provide options for improving outcomes for consumers.

Under consideration is a range of issues including the competitive electricity market, productivity growth, efficiency and reliability, environmental outcomes, vulnerable customers and responsible management of the State’s finances.

In their draft report, the Queensland Productivity Commission (QPC) says that since 2006–07 Queensland’s electricity prices have increased in real terms by 87 per cent. This is reflective of electricity price increases experienced across Australia the Electricity Pricing Inquiry (Inquiry) states.

The Inquiry indicates Queensland’s electricity price increases have largely been driven by escalating network costs, although the costs of the Solar Bonus Scheme (SBS) and the Australian Government’s Renewable Energy Target (RET) have also played a role.

Business and residential electricity consumers have responded to increased prices, through energy efficiency, demand management and the installation of solar PV. As a result, average electricity demand is falling, which presents challenges for electricity prices with costs being spread across a smaller demand base. At the same time, Queensland’s peak electricity demand continues to grow, although not at the rates experienced in the late 2000s. The QPC believes it is becoming evident that changes are needed to tariff structures to make network pricing more equitable and to avoid building network infrastructure that is rarely used.

Evidence already shows that electricity prices are unlikely to grow at the same rate over the coming period, but electricity costs remain a concern for business, industry and households seeking price relief.

The Inquiry Draft Report contains a number of Draft Recommendations, the key recommendations, as relevant to our readers are as set out below.

The Draft Report recommends the Queensland Government should:

Supply chain productivity

Not favour any technology over another, and allow the market to evolve to meet consumer demand to ensure the development of an efficient electricity market.

Limit government intervention to circumstances of clear market failure to ensure the development of an efficient electricity market. Government intervention should only occur after there is a clear demonstration that the benefits outweigh the costs.

Generation

Not merge CS Energy and Stanwell, given the likely reduction in competition in Queensland’s already concentrated wholesale electricity market and the likely consequence of higher wholesale electricity prices.

Confirm that it does not intend to increase the size of the existing Government owned corporation (GOC) generation capacity to reduce the combined market concentration of CS Energy and Stanwell.

Require CS Energy and Stanwell to develop and adhere to a common voluntary Code of Conduct (the Code) in respect of their rebidding behaviour. The Code should be developed as part of a public consultation process.

Ensure its Renewable Energy Taskforce consider:

The cost and price impacts of a Queensland target;
The merits of including small scale solar in a renewable energy target; and
The benefits of an inter-jurisdictional approach to emissions reduction policy.

Work with the COAG Energy Council to find opportunities for collaboration on carbon policy, as an alternative to pursuing independent action.

Not intervene in the solar PV market to achieve a 3000 MW capacity target for solar PV uptake in Queensland by 2020.

Networks

Ensure the planned merger of the network businesses to achieve efficiencies is complemented by strengthening of the shareholder oversight role to ensure clear targets for improving performance are set and achieved.

Where network businesses are engaged in potentially competitive functions,

Ensure priority is given to the core activities of the businesses, being the provision of electricity network services;
Ensure there is robust ring-fencing between the competitive and monopoly functions;
Undertake market testing of any commercial interactions between the functions; and
Consider a longer-term strategy of full structural separation of the energy services business and the natural monopoly distribution businesses.

Ensure distribution businesses minimise or defer network capital expenditure by pursuing both tariff and non-tariff demand management programs (including discounts or rebates) for customers who shift their load to off-peak periods or are subject to interruptibility of supply.

Solar Bonus Scheme

Consider the merits of an earlier end to the Solar Bonus Scheme than the planned 2028 scheme closure.

Retail markets and consumers

Limit its involvement in the retail market to:

Points of significant change in the market that require the trust and credibility governments have with consumers (e.g. deregulation in SEQ, tariff reform); and
Providing targeted support for vulnerable customers, including partnerships with the community sector.

Prepare for its review of the effectiveness of the National Energy Retail Law (NERL) in Queensland by determining:

Whether the information retailers are required to publish in the market is sufficient to encourage effective consumer choice;

Whether the arrangements are sufficiently flexible to apply to new products and services, and do not unnecessarily stifle innovation or limit competition;
Whether the current retail market framework is applicable to new or alternative service providers and provides a level playing field for all participants while ensuring adequate consumer protections are retained; and
Options to improve the competitiveness of standing offers, including requiring retailers to publish their standing offer prices on the same day which is likely to have consumer benefits.

Deregulation in SEQ

Commence deregulation of the SEQ retail electricity market as planned on 1 July 2016.

Monitor the impact of deregulation on vulnerable and low income customers, particularly in relation to:

Understanding contract terms and benefits, including percentage discounts off standing offers; and
Late payment penalties.

Options for increasing competition in regional Queensland

Put in place structural reform for Ergon Energy (Retail) prior to the implementation of regional competition to clearly separate the retail and monopoly elements of the Ergon Energy business.

Consider full structural separation of Ergon Energy (Retail) from the distribution businesses (including Energex) under the new merger model.

The ‘non-reversion’ policy should be removed from the Electricity Act 1994 and the restriction on Ergon Energy (Retail) competing to retain existing customers should be removed.

Rural and Regional industries

Ensure meters capable of measuring charges for the relevant tariff options are in place for customers on transitional and obsolete tariffs.

Develop an industry assistance arrangement to help impacted businesses to adjust before 2020 by:

Identifying which customers on transitional and obsolete tariffs are at risk as a result of the shift to cost reflective electricity prices;
Providing financial grants to support customer investment in energy efficiency and demand management; and
Considering whether to provide additional support for particular customers separate to electricity prices.

Develop eligibility criteria for access to industry assistance to target the most impacted customers and ensure taxpayer funding is spent efficiently and effectively.

Impacts of network tariff reform and impediments to participation

Improve the data set used to determine the impacts of network tariff reform on customers by ensuring:

Metering is in place to gather sufficient load profile data;
Representative samples of customers, including customers that are considered vulnerable, are included in Energex and Ergon Energy’s upcoming tariff studies; and
Government, customer representatives and distribution and retail businesses aggregate the necessary load profile and demographic data.

Investigate:

Placing a requirement on landlords to meet certain standards of energy efficiency and demand management in their housing stock; and
Funding a complementary assistance program to subsidise the purchase price of energy and demand efficient appliances for vulnerable consumers that have accessed the Home Energy Emergency Assistance Scheme due to the breakdown of their existing appliances.

 

The Final Report to the Queensland Government is due 31 May 2016 and will take into account of any responses received from interested parties.

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