So here it is. None of us want higher power bills. And regardless of what anyone may think, not even the energy providers want it to rise arbitrarily. They want people to feel relaxed about turning their plasma TV's on and certainly don't like to see daily news stories that speak of their product as if it is some sort of flesh eating bacteria.
But why is the Western Australian public so angry about the price of their utilities?
The answer is sadly about message management - or to use more popular vernacular, spin. That might sound like an opening line to attack the current government, but in this case I’m suggesting the Government should have given us more.
Settle down! I know that doesn’t sound sensible. Just bear with me…
The harsh reality is the cost of electricity production, transmission and safety has dramatically increased over the last decade or so. The south-west of WA (SWIS) is covered by a huge, and consequently somewhat inefficient, network. The rest of the state is powered by a disparate mix of even less efficient small isolated systems, often located in very remote (and therefore expensive to service) areas. The power in these isolated systems generally costs a lot more to produce than that in the consolidated SWIS but because all governments support the idea that country people shouldn't be punished for living in regional WA, city power users subsidise these tariffs so everyone pays the same for power, regardless of where they live.
In short, WA really does have some very unique challenges and they unequivocally add to the pure cost of power. That’s not the Government’s fault.
And the Barnett Government has been desperately trying to get that message out, but because they only started in earnest up after people got huge increases to their power bills, many voters thought it was just cynical spin. When people think governments say something only to justify their bad decisions, they get angry and stop listening: "Sweetheart, I know what you think you saw, but I only touched her there because I was giving her CPR..." - sometimes, even if there's a good explanation, it's just too late to be heard.
So, the Government probably should have had little or no tariff increases in 2009 and spent A LOT of time in their first year educating the public about the need to increase tariffs in future years, perhaps even offering big incentives for people to upgrade their inefficient appliances and change wasteful habits in advance of the inevitable price hikes. They probably should have also tried to explain that the biggest power users are in the most wealthy suburbs and that means honest tax-paying mums and dads are actually subsidising millionaires to run 5 plasma TV’s and a filter for a lagoon in the backyard of their 12 bed Dalkeith mansions.
That’s a simple fact and while it would have irritated the millionaires, it could have been a pretty easy sell to most mums and dads – if it came before the increases. Indeed, if they had done all that in 2009, the Barnett Government MIGHT have been able to win the public over in their current Keating-esque “increases the public needed to have” campaign.
But of course hindsight is a wonderful thing and to be fair, the Barnett Government's first budget was framed in very uncertain global financial times. They were rightfully nervous about future income, had to start saving for some big election promises (eg Stadium, Waterfront, permanent payroll tax cuts – oops, never mind) and had to try to do all that while handing over great wads of cash to their new minority “partners” via the Royalties for Regions scheme.
So another self-question that would make KRudd proud: Given we are where we are right now, what can the government do to reduce pressure on electricity tariffs?
Ah, the first C - Control. And to be a bit more specific – genuinely putting one person in control and making them fully accountable for it.
This is management 101 stuff – when an individual is given genuine responsibility and autonomy for something, they are far more likely to deliver results - or at least be the only person to performance manage (or napalm if you’re Minister Collier) when things go wrong. The theory is sound, easy and really self-explanatory.
But alas, this simple management practise just doesn’t seem achievable within the “highest levels of government” (Sorry Peter, you cracked me up when you said that on 6PR the other day). We already know the Minister for Energy and Premier barely speak, let alone genuinely collaborate on anything in the energy portfolio.
I really don’t know how to fix that. They simply hate each other and the wounds run deep. Peter is still grumpy because he didn’t get the education portfolio almost 4 years ago and to rub salt in that wound, the Premier didn’t stay very long at his 50th birthday party. Colin, well Colin is generally grumpy with most people but he especially despises unintelligent, political forg.. err, power-brokers.
Anyhow, that relationship is not going to get any better, but beside those two pushing and pulling the levers of control to spite each other, the situation has been made worse with the emergence of a third dysfunctional relationship – the government’s own “independent” economic regulator, the ERA.
For example, if all three were on the same page, today’s budget would have included a 6% or $100 a year reduction in people’s power bills by simply following this recommendation from their own expert authority:
“The subsidy to Horizon Power is not a cost that is associated with generating, distributing or retailing electricity in the South West. It is a cost associated with a Government policy decision. Just as the subsidy for Water Corporation’s regional customers is not paid for by Perth customers, neither should the subsidy for regional electricity consumers be paid for by Synergy’s customers. The subsidy should be provided by a Community Service Obligation (CSO), which is funded out of general taxation revenue, as is the case with water customers. The TEC (Tariff Equalisation Contribution) currently accounts for approximately $95 (or 6 per cent) of a residential consumer’s annual electricity bill in 2011/12.” Page IX ERA Inquiry into the Efficiency of Synergy’s Costs and Electricity Tariffs: Draft Report 4 April 2012The Minister needs to take control and the full responsibility for Energy. I suspect we would see him drop that ball pretty quickly, but to be fair on him, he has been trying to juggle it with 2 other pairs of hands in the mix.
Next is Creativity (in competition).
We’ve heard for three and a half solid years now that competition would reduce power costs. The boffins convinced me at least that if a consumer has a choice of supplier, they will probably buy from the cheapest one. That in turn will force all the competing suppliers in that industry to find ways to bring down their costs so they can remain competitive and perhaps even offer their services cheaper – or simply go out of business.
This would have the dual benefit for the Government of bringing down electricity tariffs and being consistent with the core philosophy of the Liberal Party. However, the problem is that the current retail price of electricity is less than it costs to sell it and it is simply not financially viable for private providers to try to compete with the State-owned utilities. So the Government has been using the blunt instrument of increasing retail prices so it becomes attractive for others to compete which would presumably, um, bring prices down… yeah.
But us plebs who would be assisted by this magical increase-to-get-a-decrease policy have revolted mid way through the government’s grand plan and the poor Minister hasn’t got a clue as to how to calm everybody down. So the best they have come up with is to stop pursuing cost reflectivity, leaving us with higher costs and no extra competition. Bugger!
But what if we had a Minister who spent time trying to find new ways of creating competition?
Here’s an idea: given that the government already subsidises the state-owned providers of electricity, why not just offer that same level of subsidy to private providers on a per kilowatt hour basis? The ERA knows how much it should cost an “efficient” operation to supply power and the government sets the retail tariff. All it needs to do is offer the difference between the ERA’s efficient cost and the current tariff to all and sundry. If a private company can do it cheaper, they would get to keep the difference. Synergy et al would soon become more efficient to try to regain the government subsidy and eventually the cost would be driven down, lowering the “cost reflective” price and eventually competition would thrive without government assistance.
The last C is perhaps what we need the most in our Energy portfolio – Courage.
In politics, you can win votes with policies that make life easier for your constituents and sometimes you can even win people’s support by being genuinely courageous – even if it makes life a little harder.
What doesn’t win support is telling people they have to suffer until you get to a certain point then stopping before you get there. To the average punter that just feels like you’ve caused them all sorts of pain with absolutely no gain. At that point, they are not only hurting but can’t even respect you for making the hard decisions and sticking to your guns.
This is something else I raised at a Chiefs of Staff meeting before last year’s budget. I explicitly asked the Premier’s Chief of Staff how we would explain our apparent reversal of policy when we decided to slow our pursuit for “cost reflectivity”. He looked bewildered, as though I was speaking in another language and simply said, “I don’t think that will be a problem”.
It turns out, it is a problem. It’s a big one.
Higher prices piss people off for sure. But cowardly retreat in the face of a fight and random policy reversals make people question your competency. And in the case of energy, that’s a fourth “C” the Minister falls desperately short of.
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