E LECTRICITY C ASE S TUDY Carolyn Hodge Independent Energy Consumer - PowerPoint PPT Presentation

P RIVATISATION E LECTRICITY C ASE S TUDY Carolyn Hodge Independent Energy Consumer Consultant carolynhodge14@gmail.com

T HIS P RESENTATION  Lease of the NSW Electricity Networks  Why this is important for everyday people  Public & Private ownership  The privatisation of electricity retailers and generation output in 2011  How this could impact on the current processes

E LECTRICITY S UPPLY C HAIN Transgrid Essential Energy Endeavour Energy Ausgrid Source: Australian Energy Market Operator

T HE NSW G OVERNMENT IS SEEKING A MANDATE AT THE NSW E LECTION FOR THEIR PROPOSAL TO :  Lease of 49% of the electricity networks  Retain state-ownership of 51%  Retain state-ownership of Essential Energy (the network that serves rural & regional NSW) The Government has set up a scoping study to work out the details of the lease including;  A retention value under which the assets will not be leased  The proportion of assets to be leased to reach 49%

W HY IS THIS IMPORTANT TO PEOPLE IN NSW ? Make-up of prices paid by consumers Green 8% Wholesale 23% Network 52% Retail 10% Carbon 7% Data Source: AER State of the Energy Market, 2013, 128.

W HY IS THIS IMPORTANT TO PEOPLE IN NSW ? Source: Australian Energy Regulator: State of the Energy Market, 2014, 136 .

E LECTRICITY PRICE RISES SINCE 2009/10 Network 2009/10 2010/11 2011/12 2012/13 2013/14 Average supply Area Annual Bill % % % % % $ Ausgrid 21.7 10 17.9 20.6 3.9 2106 Endeavour 21.1 7 15.5 11.8 1.6 2044 Energy Essential 17.9 13 18.1 19.7 -0.6 2725 Energy Table 1: Movements in regulated and standing offer electricity prices Source: AER State of the Energy Market 2013, 130.

E LECTRICITY D ISCONNECTIONS NSW FOR INABILITY TO PAY 2013/14 2013/14 2013/14 2013/14 Year 2009/10 2010/11 2011/12 2012/13 Q1 Q2 Q3 Subtotal 15,835 18,561 23,207 24,888 9007 8004 8849 25,900 Source : AER, NSW-residential electricity customer disconnections h ttps://www.aer.gov.au/node/23435

P RIVATE & P UBLIC O WNERSHIP OF E SSENTIAL S ERVICES  What do you think?  Pros  Cons

P RICES  Network prices are set by the regulator under National Electricity Law and National Electricity Rules  This does not change due to ownership

T HE P UBLIC I NTEREST  Under the State-Owned Corporations Act 1989 (NSW), the portfolio minister can, with the approval of the Treasurer, direct the businesses on certain matters including public interest, public sector policies and non-commercial activities.  See: State-owned Corporations Act 198 9 (NSW), sections 20N, 20O and 20P respectively.

A RE PRICES HIGHER UNDER PRIVATE OWNERSHIP ? Green 8% NSW Victoria Green Carbon 4% 8% Whole Network sale 36% Network 23% Whole 52% sale & Retail 52% Retail Carbon 10% 7% Prices 2013/2014 year. Source AER State of the Energy Market 2013.

E FFICIENCY

A CCESS TO C APITAL Please note this diagram is for illustrative purposes only and rates shown are not actual

P RIVATISATION CAN CAUSE PROBLEMS WHEN THE PRINCIPAL OBJECTIVE IS TO MAXIMISE SALE PROCEEDS THROUGH , SAY , POOR INDUSTRY STRUCTURES OR INADEQUATE REGULATION ; THE IMMEDIATE FINANCIAL BENEFIT COMES AT A COST OF AN EFFECTIVE ” TAX ” ON FUTURE GENERATIONS . R OD S IMS , C HAIR OF THE A USTRALIAN C OMPETITION AND C ONSUMER C OMMISSION , S PEECH TO R EGULATING FOR EFFICIENT INFRASTRUCTURE OUTCOMES , SPEECH TO THE ACCC/AER R EGULATORY C ONFERENCE , A UGUST 2014. HTTPS :// WWW . ACCC . GOV . AU / SPEECH / REGULATING - FOR - EFFICIENT - INFRASTRUCTURE - OUTCOMES

W HAT CAN WE LEARN FROM PREVIOUS PRIVATISATION PROCESSES ?

W HAT WAS PRIVATISED ?  The three state-owned electricity retailers  Country Energy  Integral Energy  Energy Australia  The output of the Eraring Energy and Delta West Generators

W HAT HAPPENED TO THE R ETAILERS ?  The new owners also bought the names  The network arms of the businesses which remained under state-ownership had to change their names  Country Energy Network became Essential Energy  Integral Energy Network became Endeavour Energy  Energy Australia Network became Ausgrid

R ETAILERS  In 2011:  the sale of the retailers realised a $3.082 billion profit  the vendors received $380 million for transaction costs Source NSW Auditor- General’s Report Volume 4, 2011, Electricity Industry Overview, 7 & 8.

In 2014, the networks outlined over $200 million for costs resulting from loss of synergies Loss of Efficiency impact Synergies Offsets remaining $ million $ million $ million Ausgrid $64.1 million $38.6 million $26.4 million Endeavour $59.4 million $59.4 million $0 Essential $117 million* $113 million $4 million Total $240.5 million $211.0 $30.4 million Source Ausgrid’s Regulatory Proposal, 2014, 50 and 57. Endeavour Energy Regulatory Proposal – 1 July 2015 to 30 June 2019, 91 and 77. Essential Energy, Essential Energy Regulatory Proposal 1 July 2014-30 June 2019, 2014, 77. * Please note, Loss of synergy costs for Essential Energy also include costs arising from the sale of the Wagga Wagga gas network to Envestra . See page 76 of Essential Energy’s Regulatory Proposal 2014.

G ENERATOR O UTPUT SALE  In 2011:  the sale of the generation output realised a loss of $1.233 billion  Origin Limited bought the output of power stations at Eraring and Shoalhaven.  TRUenergy Pty Ltd bought the output of Mt Piper and Wallerawang power stations. Source NSW Auditor- General’s Report Volume 4, 2011, Electricity Industry Overview, 7 & 8.

G ENTRADER A RRANGEMENTS  The Gentrader arrangements included Available Liquidity Damages (ALDs)  ALDs allowed the Gentrader to receive a fee where the generator did not achieve ‘contracted availability targets.’  These damages were the subject of an annual cap; however they have reached significant amounts.  For example, Eraring Energy incurred ‘net liquidated damages …of around $2 million in the period between 27 February 2011 and 30 June 2011.’  Source: NSW Auditor- General’s Report Volume 4, 2011,Eraring Energy, 47.

P ERHAPS IT ISN ’ T WHAT YOU DO BUT HOW YOU DO IT  In 2011, the NSW Auditor General reported the overall profit from the sale was $1.233 billion.  In 2014, the NSW Government Budget Papers stated, Over the course of 2013-14, all residual aspects of the electricity Gentrader arrangements were divested, saving the State an estimated $2 billion through avoided Availability Liquidated Damages liabilities over the life of the previous contracts, and the removal of the obligation to develop and operate a coal mine at Cobbora. NSW Government, Budget Statement, Budget Paper Number 2, 2014-15 , Chapter 9, 2014, 4.

S TILL I NTERESTED ??  NCOSS will be hosting a workshop on the Investigating the proposed lease of the NSW Networks from an electricity consumer point of view   Friday 12 December 2014 from 9.30-12.30pm  Venue will be Sydney CBD  Contact Rhiannon Cook at NCOSS for further details rhiannon@ncoss.org.au

D ISCLAIMER This presentation is for general information purposes only. It is not intended as advice on any particular matter or legal question.