Electricity Sector in Watchdog’s Sights

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Thursday, October 23rd, 2014
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Queensland’s electricity sector has been put on notice that it will be in the sights of the national competition regulator when the privatisation of energy assets in that state is triggered.

In an address before the Energy User’s Association, Australian Competition and Consumer Commission chairman Rod Sims said Queensland’s electricity generation sector is one of the most highly concentrated in Australia, and that while privatisation could actually improve competitive outcomes if done well, any transactions which acted to merely entrench the existing structure would hurt consumers and the economy.

In his address, Sims called on the Queensland government to use the privatisation process to improve the competitive structure of the market, and hinted that the break-up of Stanwell and CS Energy into at least three competitors prior to privatisation would improve competitive outcomes and “make ACCC approval a smoother path.”

“On the flip side, there is the potential that selling an asset may worsen or entrench a market structure that is not sufficiently competitive, and so damage competition, consumers and the long-term health of the economy,” he said.

Sims’ comments follow the Queensland government’s approval of a $37 billion plan on October 8 to offer long-term leases of either 50 years or 99 years with regard to its three network companies Powerlink, Energex and Ergon Energy, as well as to generation companies Stanwell Corporation and CS Energy and a range of other ports and water pipeline assets.

The government says that plan – which replaces previously stated plans to allow the private sector to take a minority equity stake in the state’s power networks in return for dividends but not control – was necessary to help reduce debt and free up funds for infrastructure investment. It remains venomously opposed, however, by the state’s electricity unions, who say it will result in significant job cuts, higher prices and a loss of profits and control for Queenslanders.

Separately, Sims indicated compliance among the electricity, natural gas and synthetic greenhouse gas businesses in regard to carbon tax repeal obligations had been high, and dismissed calls for a gas reservation policy amongst some segments of the manufacturing industry that would constitute a ‘quick fix’ which would ‘distort market signals’ and stunt the development of new gas supply.

“Forms of gas reservation, for example, distort market signals, and the development of new gas supply,” he said. “Rather, efforts should be directed towards addressing any inefficiencies in our gas market so that competition can deliver better outcomes for gas users.”

Last month, a coalition of led by the Australian Workers Union called for a portion of the gas extracted in Australia to be reserved for domestic use at an ‘affordable’ price.

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