Energy prices are high because consumers are paying for useless, profit-boosting infrastructure


Bruce Mountain, Victoria University

The preliminary report on energy prices released last week by the Australian Competition and Consumer Commission (ACCC) suggests that the consumer watchdog is concerned about almost every aspect of Australia’s electricity industry. It quotes customer groups who say electricity is the biggest issue in their surveys, and cites several case studies of outrageous price increases experienced by various customers.

The report is long on sympathy about the plight of Australia’s electricity users. But the true picture is even worse – in reality, the ACCC’s assessment of Australia’s energy prices compared to the rest of the world is absurdly rosy.


Read more: Power bills can fall – but the main attention must be on affordability: ACCC


Australia has internationally high energy prices

The ACCC quotes studies from the Electricity Supply Association and the Australian Energy Markets Commission (AEMC) to compare electricity prices in Australia with those in other OECD countries. But the ACCC’s comparison is based on two-year-old data, and badly underestimates the actual prices consumers are paying.

The AEMC’s analysis assumes all customers are on their retailer’s cheapest available offer. This is an obviously implausible assumption, and gives a favourable impression of the price that customers are paying.

As previously pointed out on The Conversation, the Thwaites review – which looked at customers’ actual bills – found that in February 2017 Victorians were typically paying A35c per kilowatt hour (kWh) – 42% more than the AEMC’s estimate. What’s more, we know that Victoria’s electricity prices are lower on average than those in South Australia, Queensland and New South Wales, and hence below the Australian average.


Read more: Australian household electricity prices may be 25% higher than official reports


A part of this 42% gap – around 15% – is explained by the latest price increases that are not included in the ACCC’s comparison. But this still leaves a 27% gap between what the AEMC assumes and the evidence of actual prices.

This begs the question: why did the ACCC not recognise the widely known flaw in the AEMC’s analysis?

The real problem is overbuilt network infrastructure

The report estimates that rising network charges account for more of the price increase than all other factors put together. There is no doubt that network charges are a real problem at least in parts of Australia, although their significance relative to retailers’ costs is contested territory.

But why would distributors build far more network infrastructure than they need? And why have government-owned distributors built far more infrastructure than private ones, despite having no more demand?

The answer to this perplexing question is to be found in part in Australia’s “competitive neutrality” policy. This is Orwellian doublespeak for an approach that is neither neutral nor competitive.


Read more: Government Inc: time to revisit competitive neutrality


Under this policy, government-owned distributors are regulated as if they are privately financed. This means that when setting regulated prices, the Australian Energy Regulator (AER) allows government distributors to charge their captive consumers for a return on their regulated assets, at the same level as if they were privately financed. That is despite the fact that private financing is much more expensive than government funding.

It’s no surprise that when offered a rate of return that far exceeds the actual cost of finance, government distributors have a powerful incentive to expand their infrastructure for a profit. This “gold-plating” incentive is a well-known in regulatory economics.

Regulators, the industry and their associations have explained higher spending on networks in a variety of ways: higher reliability standards; flawed rules; flawed forecasting of demand growth; and the need to make up for historic underinvestment.

But was there ever historic underinvestment? A 1995 article co-authored by the current AEMC chair concluded that distribution networks had been significantly overbuilt. That was more than two decades ago, government distributor regulated assets are at least three times bigger per customer now.

The chart below – based on data from the AER’s website – examines how the 12 large distributors that cover New South Wales, Victoria, Queensland and South Australia spent their money on infrastructure between 2006 and 2013. This period covers the last five-year price controls established by the state regulators, and the first control established by the AER. It was during this time that expenditure ballooned. The monetary amounts in this chart are normalised by the number of customers per distributor.

Distributor spending on infrastructure between 2006 and 2013.
Author provided

The first five distributors from left to right (and Aurora) were owned by state governments and the others are privately owned. A clear pattern emerges: the government distributors typically built much more infrastructure than the private distributors. And the government distributors focused their spending on substations, which are much easier to build (or expand or replace) than new distribution lines or cables.

We also know that the distributors’ spending on substations far outstripped the increases in the peak demand on their networks. The figure below compares the change in the government and private distributors’ substation capacity (the blue bars) with demand (the red bars) over the period that most of the expenditure occurred. Again, the amounts have been normalised by number of customers.

Substation capacity versus peak demand between 2006 and 2013.
Author provided

The gap in spending between government and private distributors is stark. It is also obvious that in all cases, but particularly for the government distributors, the expansion of substation capacity greatly exceeded demand growth – which hardly changed over this period (and is even lower now, per connection).

To put it in more tangible terms, as an average across the industry, peak demand between 2006 to 2013 increased by the equivalent of the power used by one old-fashioned incandescent light bulb, per customer. But government distributors expanded their substation capacity by more than one 100 light bulbs, per customer. The private distributors did relatively better, but still increased the capacity of their substations by the equivalent of about 30 light bulbs per customer.

My PhD thesis included econometric analysis that shows government ownership in Australia is associated with regulated asset values that are 56% higher than private distributors, and regulated revenues that are 24% higher, leaving all other factors the same.

To some, this evidence supports a “government bad, private good” conclusion. Indeed it was this line of argument that the Baird government in New South Wales used to justify its partial privatisation of two network service providers.

But in international comparisons of government and private distributors in the United States, Europe and New Zealand, no such stark differences are to be found. The huge disparity between government and private distributors is a peculiarly Australian phenomenon.

How we got here

This Australian exception originates in chronic policy and regulatory failure. As far back as 2011, the Australian Energy Market Commission (AEMC) heard a proposal that government distributors should earn a return closer to their actual cost of financing – a suggestion that would have reduced prices significantly and removed the incentive to gold plate.

In response, the AEMC said the regulations were consistent with the “competitive neutrality” policy. But this is not true: in the policy’s own words, it was designed to stop government businesses from crowding out competitors. Distributors are protected monopolies; they do not have competitors.

The AEMC also argued, somewhat bizarrely, that it was good economics for a regulator to assume that government distributors are privately financed.

This represents the triumph of an idealistic “normative” regulatory model in which regulators act on the basis of how the regulated entity should behave rather than how they actually behave.

But it would wrong to blame the AEMC alone for this failure. All of Australia’s key institutions and governments have agreed that government distributors should be regulated as if they are privately financed. For governments that own their distributors, this has been a wonderfully profitable fiction.

Therein lies much of the explanation for what is effectively, if I may call a spade a spade, a racket.

It is an indictment of Australia’s polity and so many of its economists that the 2011 Garnaut Climate Change Review stands alone, in a library of reviews, as stating this problem clearly. In fact, if you review last week’s report from the ACCC, you will not find a single distinction between the impact of government and private distributors.

And if you thought this was yesterday’s war, you would be wrong. Despite the mass of evidence, our regulators persist in the fiction that ownership and regulation should be independent of one another.

It is difficult not to lapse into despair about Australia’s energy policy morass. Despite the valiant attempts by many, a deeply entrenched culture of half-truths, vested interests, ideology and wishful thinking still characterises all too much of what emanates from the political and administrative leadership of this industry.

Some energy consumers – Prime Minister Malcolm Turnbull among them – will buy their way out of this problem through solar panels and batteries. But the poorest households and many business customers will increasingly be left carrying the can.

The ConversationAustralians are angry about electricity. Not unreasonably.

Bruce Mountain, Director, Carbon and Energy Markets., Victoria University

This article was originally published on The Conversation. Read the original article.

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Unprecedented Christmas Gathering Held in Vietnam


With permission little and late, organizers work by faith to accommodate crowds.

HO CHI MINH CITY, December 14 (CDN) — On Friday evening (Dec. 11), history was made in communist Vietnam.

Christian sources reported that some 40,000 people gathered in a hastily constructed venue in Ho Chi Minh City to worship God, celebrate Christmas, and hear a gospel message – an event of unprecedented magnitude in Vietnam.

A popular Vietnamese Christian website and other reports indicated up to 8,000 people responded to the gospel message indicating a desire to follow Christ.

For the last two years, authorities surprisingly granted permission to unregistered house churches in Ho Chi Minh City to hold public Christmas rallies, and last year more than 10,000 people participated in one in Tao Dan Stadium.

This year visionary house church leaders approached the government in October and asked for a sports stadium seating 30,000; they were refused. Authorities offered a sports venue holding only 3,000, located 13 kilometers (eight miles) out of the city. This was unacceptable to the organizers. They pressed for another stadium in the city holding about 15,000, and officials gave them a verbal promise that they could have it.

The verbal promise did not translate into the written permission that is critical in the country – church leaders say such promises are empty until “we have the permission paper in our hand.” Christian leaders believed event planning had to proceed without permission and sent out invitations far and wide – only to have authorities deny the stadium they had promised.

Led by Pastor Ho Tan Khoa, chairman of a large fellowship of house church organizations, organizers were forced to look for alternatives. They found a large open field in the Go Vap district of the city. When permission was still not granted five days before the planned event, several church leaders literally camped for three days outside city hall, pressing for an answer.

Authorities, who often work to sabotage united action among Christians, tried urgently to find ways to talk the leaders out of going ahead, promising future concessions if they would cancel the event. Organizers stood firm. Ultimately they told the deputy mayor that refusal to grant permission at that point would have far-ranging, negative ramifications in Vietnam as well as internationally.

Finally, at the close of business on Dec. 9, just 48 hours before the scheduled event, officials granted permission that required clearance all the way to Hanoi. But the permission was only for 3,000 people, and many more had been invited.

Organizers had less than two days to turn a vacant field into something that would accommodate a stadium-size crowd. They had to bring in ample electricity, construct a giant stage, rent 20,000 chairs, and set up the sound and lighting. The extremely short time frame caused contractors to double the prices they would have charged with ample time.

Organizers also rented hundreds of busses to bring Christians and their non-Christian friends from provinces near the city. Thousands of students sacrificed classes to help with last-minute preparations and to join the celebration.

Just after noon on Friday (Dec. 11), word came that police had stopped busses carrying 300 Steing minority people from the west to the event scheduled for that day. Organizers, fearing all busses would be stopped, put out an emergency worldwide prayer request.

Christian sources said that authorities either did not or could not stop busses from other directions, and that by evening the venue became the biggest “bus station” in all of Vietnam. By 6 p.m. the venue was full to capacity, and at least 2,000 had to be turned away.

Christians described the event, entitled, “With Our Whole Hearts,” in superlative terms. For house churches, large gatherings are both very rare and very special, and for many this was their first glimpse of the strength of Vietnam’s growing Christian movement. Thousands of Christians joined a choir of more 1,000 singers in loud and joyful praise.

Sources said that the main speaker, the Rev. Duong Thanh Lam, head of the Assemblies of God house churches “preached with anointing” and people responding to his gospel invitation poured to the front of the stage “like a waterfall.” With space in front of the stage insufficient, the sources said, many others in their seats also indicated their desire to receive Christ.

Organizers along with many participants were overwhelmed with emotion and gratitude as the event closed. People spontaneously hugged each other and cried, “Lord, bring revival to all of Vietnam!” Other comments included, “Beyond our fondest imagination,” and, “Nothing could stop the hand of the Lord.”

The event raised more than 60 million dong (US$3,280) for a charity helping needy children. People were quite surprised to read a positive article on the event in the state-controlled press, which often vilifies Christians.

House churches in the north were hopeful that they could hold a similar event. Organizers in Hanoi have heard encouraging reports that they will get permission to use the national My Dinh sports stadium for a Christmas celebration, though they do not have it in hand. Sources said they have sent out invitations across a broad area to an event scheduled for Dec. 20.

Friday’s event also made history in that it was streamed live on the Vietnamese website www.hoithanh.com and viewed by thousands more in Vietnam and by Vietnamese people around the world.

Report from Compass Direct News 

PAKISTAN: CHRISTIANS PRESSED AS MILITARY BATTLES TALIBAN


Residents flee Swat Valley where fight rages with Islamist insurgents.

ISTANBUL, May 13 (Compass Direct News) – Pakistani Christians in Swat Valley are caught between the Taliban and Pakistan’s military as it assaults the stronghold where sharia (Islamic law) rules.

Nearly 15,000 troops have been deployed in the picturesque Swat Valley in Pakistan’s North West Frontier Province (NWFP) and neighboring Afghanistan. Troops came after months of peace negotiations collapsed between the Taliban Islamist insurgents who have imposed sharia in the valley and the central government last month. Hundreds of thousands of Pakistanis have fled the war-ravaged area for fear of a full military assault.

On May 10 (Sunday) the army ordered residents to flee Swat Valley during a lull in fighting. Aid groups estimate that as many as 1.3 million could be displaced by the fighting, according to The Guardian.

Christians are particularly vulnerable in the mass exodus. Working as poor day laborers, they occupy the lowest rung of the social ladder and have little money for costly transport or to stock up on resources before fleeing.

“Christians are poor, and like in any conflict, the prices of transportation and commodities skyrocket,” said Ashar Dean, assistant director of communication of the Church of Pakistan Peshawar diocese. “Some had to go on foot to flee the valley.”

The Taliban had ratcheted up pressure on Christians, other religious minorities and liberal Muslims in Swat to live according to Islamic fundamentalist norms. They were forced to grow beards and don Islamic attire for fear of their safety in an attempt to blend in with Muslim residents of Swat.

Many Christians also fled for insufficient funds to pay the jizye, a poll tax under sharia paid by non-Muslims for protection if they decline to convert to Islam.

In February the Pakistani government ceded control of Swat valley to the Taliban, who imposed their version of sharia and established clerical rule over the legal system. But Christians had seen warning signs long before the formal sharia announcement. In the past year the Taliban burned or bombed more than 200 girls’ schools in Swat, including one that housed a Catholic church.

Religious minorities live in a precarious situation in the Muslim-dominated country. The legal system informally discriminates against non-Muslims, and in recent years Christian villages have been ransacked by Muslim mobs incited by dubious reports that a Quran had been desecrated.

The Taliban’s attempts to spread out from Swat into neighboring areas, however, have increased feelings of insecurity among the nation’s 3 million Christians.

“The threat of the Taliban is a hanging sword above the necks of Christians,” said Sohail Johnson, chief coordinator of Sharing Life Ministry Pakistan. “Christians could be in the situation where they would have to accept Islam or die.”

Swat Christians Flee

Approximately 40-60 Christian families lived in Swat as congregants at the Church of Pakistan. But since Prime Minister Yousaf Raza Gillani on April 8 announced a military mission into Swat, nearly all have fled to nearby districts.

Most are in refugee housing in Mardan in the NWFP. They stay in a technical school owned by the Church of Pakistan, a congregation composed of Anglicans, Presbyterians, Methodists and Lutherans

The school dismissed its students for the school year early to make room for the refugees. Opening its doors to the displaced Christians was necessary due to government inaction toward religious minorities, said Yousaf Benjamin of the National Commission for Justice and Peace.

“The government is giving protection to Muslims, but the Christians are through waiting for their services,” he said.

Similar measures are being employed in hundreds of schools. To provide for the massive influx in refugees, the Pakistan government ended the school year early in districts near Swat and opened the schools to refugees for temporary housing. Teachers are also assisting in the humanitarian relief effort, Benjamin said.

Some Christians have complained of facing discrimination in refugee camps. Government relief workers forbade Christians, Hindus and Sikhs from setting up tents or eating with Muslim refugees, according to online news site Christian Today.

But ultimately Christians will not be able to return to Swat Valley unless the Taliban threat is completely removed, Christian relief groups said. Their possessions and property will otherwise always be under threat.

“Christians will face terrible persecution if the Taliban is not controlled by the government,” Johnson said. “They will easily attack churches, schools and other Christian institutions.”

Rehman Malik, the interior minister, said Pakistan’s military operation would continue until the last Taliban fighter had been ousted. Since April 8, government troops have killed an estimated 751 militants.

There are believed to be 5,000 Taliban militants in Swat Valley. The government hopes to minimize civilian casualties through precision air strikes and delivering emergency humanitarian aid.

Pakistan’s government has come under harsh national and international criticism for its negotiations with the Taliban and ceding control of Swat. They fear the Taliban could seize control of the nation’s nuclear weapons.

Report from Compass Direct News

PETROL PRICES NOT FALLING AS OIL PRICE CRASHES


Oil Prices have continued to fall in recent weeks, yet the price of petrol has hardly moved from near $1.54 a litre in New South Wales, Australia. The Australian dollar has also tumbled, but even allowing for this the price of petrol should be considerably lower than it is.

Newspaper reports say that we may need to wait another 3 weeks before we see any worthwhile drop in petrol prices in Australia – yet how soon do we see the price of fuel rise when the oil price goes up. I think this would be what we term petrol price gouging.

Australians should be paying closer to $1.20 to $1.30 a litre rather than that which we are paying currently.

DO YOU GET THIS TYPE OF SERVICE AT A PETROL STATION?


With petrol prices in Australia not reflecting the falling oil price, Australians would be justified in questioning the service you actually get at service stations. Are service stations becoming like banks – being so preoccupied with profits that fairness is no longer an option?

How can petrol sell at $1.62 a litre today when oil has now dropped to around $95.00 a barrel US? This is the highest price for petrol that I can remember – even higher than when oil was up towards $150.00 a barrel US! Doesn’t make a lot of sense does it?

In this video which is an advertisement for Total Service Stations it seems that customer service is very important to Total. Has this been your experience in customer service when fuelling your vehicle at a service station?

Australian Wine


Australian wine producers are facing a major glut of grapes and wine on the market. Prices for wines will probably drop quite a bit – but hopefully quality won’t.

You would expect that there will be a whole heap of cheap and nasty wines dumped on the market in coming years – however, you would hope that quality producers will concentrate on quality and produce even better wines.

Australian wines – there are a lot of good ones out there. Then again, I am an Aussie.