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Deregulation in QLD: Responding to a changing environment

By Lauren Kelleher

Uncertainty around market outlook and reform currently surrounds the state of play in the power and gas market in the Sunshine State.

The electricity demand downturn and extraordinarily high network distribution costs are just two of many factors driving consumers away from traditional, centralised electricity supply and towards more alternative power sources.

As a result, electricity generators, distributors and retailers are looking for new ways to ensure better outcomes for consumers – which is proving difficult to achieve in such a volatile market.

Underpinning the ‘unknown’ is the current stance of the newly formed Queensland Labour Government towards regulatory arrangements and deregulation of electricity prices.

Deregulation, which will allow the market to decide the price of electricity, was initially due to take effect in two months under the power of the previous LNP Government.

But that has now been put on hold for one year, with the Queensland government recently announcing in April they are establishing a commission to conduct a public inquiry into electricity prices in the state.

Energy Minister Mark Bailey, who will be addressing the industry on the future state of the market at the upcoming Queensland Power and Gas Conference in July, says the electricity price review will need to balance a range of interests and seek to protect the interests of consumers.

“The review will take into account the need for a competitive electricity market, efficient investment in infrastructure and good environmental outcomes,” he said.

“This way, input can be sought from the community, businesses, industry and key stakeholders so that the final deregulation model is in everyone’s best interests.”

And it seems ensuring the outcomes are in the best interests of consumers is driving industry discussion around how to respond to potential deregulation over the course of the next year.

The aim is to ensure there is an opportunity for creative solutions is terms of the structure of prices that are provided to consumers.

Merryn York, CEO at Powerlink, says that while it is virtually impossible to predict the future, the main objective of the industry as a whole is to ensure the best result for the end-user.

“The aim is to ensure there is an opportunity for creative solutions is terms of the structure of prices that are provided to consumers,” she said.

“The industry wants electricity to be valued by the people who are using it and to ensure that consumers get better value for money for what they pay for electricity.”

Giving consumers’ value for money is something that Powerlink has been focusing on for the last three years’ by ensuring a balance between cost and reliability of supply is factored into decision-making.

And customer centricity is going to play even a bigger role in their business strategy in the coming months.

“Transmission is only about 10 per cent of the delivered residential electricity price, but obviously the impact we can have is very far-reaching,” she said.

“So we’re focusing on ensuring people see and perceive the products we’re providing are value for money. We always look critically at any investment – whether its too meet demand, replacing assets that are at the end of their life, or enabling the competitive market (because we’re also front-facing out into the electricity market), we always aim to ensure we’re taking into account how our decisions will affect the value customer and end-use consumers will get for what we’re providing.”

This focus on providing value to the end-user is echoed by the Australian Energy Regulator’s recent draft report in April, which if it comes to pass, will see the amount of money Ergon Energy and Energex are allowed to recover from customers cut, which should equal lower distribution costs passed on to customers.

Terry Effeney, CEO of Energex, says that the potential AER determination has come as no surprise to Energex and is something they have been preparing for a while.

The decision to slash Energex‘s expenditure on poles and wires by $1.9 billion, or 23 per cent, is expected to deliver average annual reductions of between $16 to $44 up to 2020 for the long-suffering electricity consumers in the state’s south-east who have faced double-digit price increases in recent years.

Mr Effeney says Energex is undertaking measures to ensure retailers and customers are getting the best value for money in light of the potential AER determination and regulatory changes.

“Energex is doing a lot of work to ensure we’re providing better signals and tariffs’ to customers. This involves making sure people understand what the best value is in terms of new technologies available, as well as ensuring signals drive least cost solutions for customers,” he says.

But according to Mr Bailey, pricing and product transparency is something the previous government made very hard to achieve due to its decision to deregulate power prices without properly considering the impact it would have on the end-user.

According to a recent report released by the Queensland Competition Authority report on the 7 May, 26,636 households had their power cut off in 2014 because they could not afford to pay their electricity bills.

“Under the previous Newman Government power prices went through the roof. The average electricity bill rose by $440 in those three years of LNP rule and this report shows the real impact on households,” Mr Bailey said in an address to the State Parliament earlier this month,” he said.

Mr Bailey says that working with the industry and educating consumers about potential changes will be key to ensuring the effectiveness of deregulation.

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