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13 April 2015
by Kaye Lee

It makes no sense

In March 2014, the Australian Competition and Consumer Commission (ACCC) opposed AGL Energy Limited’s (AGL) proposed acquisition of Macquarie Generation, NSW government-owned power stations which produce just over a quarter of NSW’s energy.

The ACCC considered the proposed acquisition was likely to result in a substantial lessening of competition in the market for the retail supply of electricity in NSW. The ACCC was also concerned about the likely competitive impact of the proposed acquisition in one or more of the wholesale electricity markets in NSW, Victoria and South Australia, stating that:

“the proposed acquisition is likely to mean that consumers will ultimately pay more for electricity, receive lower quality service and be offered less choice.”

A major cause of concern was that, if the acquisition went ahead, up to 80 per cent of the state’s energy generation would be controlled by AGL, Origin and EnergyAustralia.

The Australian Competition Tribunal overturned the ACCC’s decision deciding that the benefits to the public of freeing up money for “critical infrastructure” outweighed any detriment to competition.

“The ACCC acknowledges and respects this decision by the Tribunal. However, the ACCC is disappointed that the Tribunal has authorised the proposed acquisition given that, if it proceeds, the ACCC considers it would have significant implications for the future of competition in, and performance of, the retail and wholesale electricity markets,” ACCC Chairman Rod Sims said.

“This is because if the acquisition of Macquarie Generation by AGL proceeds, the three largest generators in NSW will have been sold to the three largest retailers resulting in a permanent structural change in the NSW electricity market. These vertically integrated retailers will dominate electricity supply.”

“The ACCC remains of the view that privatisation of these assets to an alternative bidder would achieve a more competitive outcome which in turn will benefit NSW consumers. The ACCC also remains concerned about whether the conditions of authorisation are able to be effectively enforced.”

Since this decision, coupled with the repeal of the carbon price, total emissions in the year to January 2015 were 2.6% higher than in the year to June 2014, and the emissions intensity of NEM electricity was 3.3% higher.

The biggest source of carbon emissions is electricity and about 75 per cent of this comes from coal-fired generators. The share of the national electricity grid being powered by brown coal – the cheapest and most carbon-intensive type – is rising. Three-quarters of the country’s coal power plants are running beyond their original design life: they are the reason our electricity sector is one of the most carbon intensive in the world.

Within a decade, around 50% of Australia’s coal-powered generators will be over 40 years old, with some currently operating stations set to hit 60.

The energy white paper says:

“The energy market has proven to be a robust mechanism for driving efficient outcomes and is the appropriate mechanism to signal the timing of decommissioning of generation.”

With the repeal of the carbon price, the uncertainty about the Renewable Energy Target, the rise in gas prices, and the lack of safeguard mechanisms in the Emissions Reduction Fund, there is no incentive to move away from old coal-fired generation.

As Mike Baird fires up to privatise the poles and wires in NSW, more questions are being asked about the success of privatisation in Victoria. Whilst consumer prices are lower, according to economist and former NSW Treasury official Dr Betty Con Walker, the privately-owned Victorian network has failed in one area where NSW has succeeded: investment.

“The buyers of the Victorian agencies have not kept up with spending that’s required,” she says. When asked why that is, she replies: “Because they’re corporations. They’re motivated by profit.”

The implication of this is that the short-termism of listed companies, which must appease dividend-hungry shareholders, leads to corner-cutting, which in turn leads to shoddy maintenance and failure to invest properly.

It should also be taken into consideration that the NSW government will be giving up a massive source of income – $1.7 billion last year.

Every decision being made by our conservative governments flies in the face of reality.

The environment, climate, and health implications do not feature in their calculations. Every action is designed to prop up the fossil fuel industry – rescinding carbon and mining taxes, fossil fuel subsidies, exploration grants – whilst destroying our clean energy future – uncertainty about the RET, ignoring/abandoning the one million solar roofs promise, funding investigations into the “health impact” of wind turbines.

The advice of the ACCC is ignored, monopolies are encouraged, ongoing revenue is thrown away – all so we can grab some cash to build more roads.

Instead of polluters paying for the damage they cause, and hence being motivated to invest in reducing emissions, we will either pay for them to upgrade their factories to reduce their power bills or we will allow them to carry on with business as usual. Should they increase their emissions there are so many out clauses in the ERF that they are unlikely to face any penalty.

It makes no sense.