Queensland energy reform requires choice

Giving Queensland electricity consumers choice or Full Retail Contestability (FRC), is an encouraging sign. Potentially, at least, the Premier is showing some policy ticker amid the chaos over health.

For energy reform is unforgivingly complex, with few political upsides. The benefits are not always clear-cut and privatisations elsewhere have often been pursued for the wrong reasons. That said, it’s difficult to defend the extent of Queensland Government intervention in electricity. If Peter Beattie really believes FRC a good thing, he should be willing to also let go of some other sacred cows.

Former Energex director Fiona Guthrie saw nothing positive in FRC (The Courier-Mail, September 30), lamenting “consumers are going to find choice throws up exactly the same problems we see with telephone companies”. This is a little precious, and typical of a troubling community sentiment that seems to want its economic cake and to eat it too. It’s not a perfect world. Yes, there are some less-than-fabulous consequences of free choice and the market, including annoying telemarketers. But you can’t have it both ways.

Like it or not, our economic fortunes involve a simple choice: either the clinical efficiency of the market or a paternalistic world where governments make decisions for you. You can’t commit to the free market, pocket the benefits of globalisation, then whinge when petrol prices go up or retailers tempt you with a free set of steak knives.

The real difficulty for Premier Beattie is FRC must also bring increased competition.  It’s a package deal. But the more competitive the electricity market becomes, the less able he is to deliver the honourable-but-futile promise that corporations can be made to submit to demands for what the public deem acceptable, including no cold calls at dinner time.

The price for Australia’s market-driven prosperity is loss of centralised control. This political time-bomb has been ticking away since Queensland signed on to National Competition Policy, though its debilitating effects have been most acutely felt by our Government Owned Corporations (GOCs).

As poor Greg Maddock, former chief executive officer of Energex found last year, GOCs such as Energex have been given intolerable goals. On the one hand, they must behave commercially, as if they were just another company hoping to earn a fair return for shareholders. On the other, public ownership commands unique and subtle controls. Why own them otherwise?

But being anything other than strictly commercial must disadvantage GOCs. It is costly retaining surplus staff or making investments in sensitive electorates. Of course, when performance assessment arrives, the owners don’t want to know about any excuses for not hitting state budget targets.

The most devastating aspect of GOC culture, however, is the micro-management. The public sense the loss of control associated with market competition. Rather than acknowledge this as part of the economic pact, successive governments have tried to re-assert their authority via a de facto management role. GOCs are now over-run by a petty bureaucracy sold to the punters as an accountability regime.

FRC will bring these confusing dynamics into even sharper relief. Come July 1, 2007, Energex and Ergon will line up against some of Australia’s best managed and financed companies, in AGL and Origin Energy. They will also compete against each other. Yep, that’s right: commonly owned businesses will fight for the right to serve their own shareholders.

FRC and Queensland’s continued growth will under-write further private sector investment in electricity. Fortunately for Peter Beattie, the mounting conflict that will accompany all this can be defused with minimal political fuss. Unlike Telstra, the electricity industry is already separated into competitive and regulated parts. It’s therefore relatively easy to sell off the high-risk businesses, while retaining the all-important network assets in public hands.

While Energex presents itself as one company, it’s actually two very different organisations. Energex Distribution is a monopoly network business worth around $4 billion. It trims your trees, maintains vital engineering assets and has about 3,000 mainly trade-based staff. The core skill of the few hundred white-collar workers at Energex Retail is marketing and managing the financial risks around a wholesale price of electricity that can move from $35 to $10,000 in five minutes. Apart from its people, the major asset of a retailer is its sophisticated IT systems.

There’s no sound reason for the public to own the retail subsidiaries of Energex and Ergon, especially now FRC is coming. The logical extension of selling retail would be to also privatise all or some of the generation sector. Power station owners are counter-parties to the retailers in the wholesale market and would complement a total risk divestment package.

Queensland should learn from the numerous mistakes of others when it comes to electricity reform. But we can’t capitalise on these lessons by continuing to deny the same imperatives for change are now upon us. If we want choice, we need competition. And if we have true competition, you really have to ask yourself what value there is in public ownership.

This will be the true test of Peter Beattie’s convictions, not FRC.