SEC can’t compete in cut-throat power game to lower bills, experts warn

Labor’s plan to revive Victoria’s State Electricity Commission was perhaps the most potent policy promise of the 2022 state election campaign.

Then premier Daniel Andrews said it would put power back in the hands of the people, reclaiming profits from greedy electricity companies and returning them to the public through lower power bills.

Daniel Andrews campaigning in Yallourn with a promise to “bring back the SEC”.Credit: Jason South

The strong impression was that Victorian consumers would once again have access to cheap government power, but this time power generated from clean, green wind and solar rather than dirty brown coal.

“Big energy companies want to offshore profits – we want to offshore wind …” quipped Andrews in October last year. “We’ll bring power back into the hands of Victorians by creating government-owned energy – keeping bills down and the lights on.” With energy prices soaring, the message struck a chord with voters.

But one year on, and with news the SEC will be forced to compete on a level playing field with private sector energy companies, experts are questioning whether it will cut prices for consumers as promised.

So, how does the SEC Mark II align with Andrews’ promise? And will it really deliver cheaper, publicly-owned power to consumers?

With Andrews now departed, the Allan government is paddling furiously to retrofit his lofty “power for the people, not profit” rhetoric into the reality of the east coast electricity grid, one of the largest and most complicated interconnected electricity markets in the world.

”It’s back,” new premier Jacinta Allan declared late last month on X, formerly known as Twitter, above a photo of a certificate of registration for SEC Victoria Pty Ltd, lodged the previous day.

Victorian Premier Jacinta Allan with Atlassian’s Mike Cannon-Brookes on announcing the SEC has been registered with ASIC.Credit: Eddie Jim

The release of a 10-year strategic plan, mapping out – in very broad terms – how the new SEC will operate set three priorities: accelerating the transition to renewables, supporting the switch to all-electric households, and building a renewable energy workforce.

But don’t expect a massive government-owned renewable energy plant selling power to the people any time soon. Over the next few years at least much of the SEC’s work will involve rebranding old initiatives, bringing responsibility for managing the government’s existing wind, solar and storage contracts under the SEC umbrella from 2025, and taking over the job of sourcing power for various government entities.

This is not the old SEC, not by a long shot. Perhaps the biggest clue about the difference can be found on page 43 of the strategic plan, with the seemingly innocuous phrase: “The SEC complies with the Victorian Government’s competitive neutrality policy, which requires us to ensure we compete fairly in the market.”

To understand the ramifications of this you need to travel back to the national competition policy reforms of the 1990s, around when the old SEC was carved up and sold off. Privatisation, corporation and competition were the order of the day.

Competition policy required that government business entities should not be able to use clout afforded by public ownership to gain a competitive advantage over their private sector rivals. In other words, public companies should not get a benefit from access to cheaper borrowing costs, or the fact they typically don’t pay the same tax as private businesses.

Then prime minister Paul Keating and then Victorian premier Jeff Kennett in 1995 at the signing of the competition policy agreement with the states.Credit: The Age

If indeed the new SEC is forced to adhere to this principle, as the government says, the impact could be significant. Was the government spooked by warnings from energy business about the dangers of “crowding out” private investment?

One thing is clear - the government’s language has changed. Where Labor a year ago was bashing greedy energy multinationals, it is now politely focused on “partnering” with them. Technology billionaire and renewable energy advocate Mike Cannon-Brookes officially attended the launch of the government’s 10-year strategic plan.

Energy Minister Lily D’Ambrosio said a slowing of renewable energy projects across Australia, had left plenty of space in the market for the government and the private sector to operate in tandem.

“The challenge for the SEC will be to drive the uptake in renewable energy, while leaving space in the market for the private sector,” she told The Age last Friday.

Victoria University’s energy policy centre director Bruce Mountain, has previously described the competitive neutrality principle in electricity markets as “Orwellian doublespeak for an approach that is neither neutral nor competitive”.

Mountain, a leading energy market expert who earlier this year advised the government on the implementation of the new-look SEC, told The Age last week that it was “a bit disappointing” the government remained committed to outdated competition policy in energy.

Energy policy expert Bruce Mountain.Credit: Eamon Gallagher

Mountain said the competitive neutrality requirement was an abstract bureaucratic construct which has held back sensible decision-making in electricity for as long as it has been applied.

The competitive neutrality principle raises an important question. If the SEC is forced to compete on a level playing field with private generators, distributors and retailers – who are arguably much better at running businesses – then what is the point? Why shouldn’t the public get the benefits of lower government borrowing costs and a lack of corporate taxes?

Other energy market experts share Mountain’s concerns, warning that the purpose of the SEC should be to fill gaps in the market and coordinate investments across the grid, rather than directly competing on a level playing field while retailing energy to small and medium-sized commercial customers.

“It doesn’t stack up logically,” says Grattan Institute energy program director Tony Wood.

“It’s supposed to be there to be doing something that the private sector isn’t doing. But if they’re going to operate on a competitively neutral basis, I don’t see how it can compete in what’s probably the most cutthroat part of the industry, and that’s the small commercial businesses.”

The issue of competitive neutrality is already contentious in the Australian political landscape. In Queensland, where electricity assets are government owned, competitive neutrality charges are imposed on the publicly-owned network. According to the Queensland Greens, getting rid of these charges, along with dividends paid to the government, could cut power bills by as much 41 per cent.

In Victoria, a number of existing public entities, including water businesses, are forced to pay the blandly named “financial accommodation levy”, which is specifically designed to “remove the competitive advantage that government entities may experience in borrowing”.

According to the latest budget, the levy is expected to raise $723 million over the next four years. If the SEC is indeed forced to similarly charge consumers to offset its public advantages, it would almost certainly be seen as a defacto tax on energy, which would undoubtedly cause political problems for the government, particularly in the current high inflation environment.

RMIT emeritus professor David Hayward says that when Labor promised last year to bring back the SEC, most Victorians probably thought this meant the state “was going to wean itself off the privatised and marketised national energy market”.

“It has ended up as something far more modest that will support the badly flawed existing system and not replace it,” says Hayward.

“The new SECV will do nothing to fix this mess, and, sadly, it is now clear it is not intended to do so.”

Australian Industry Group director of climate change and energy Tennant Reed also warned the competitive neutrality rules weakened the case for a government owned entity, pointing out it would not gain the benefits of cheaper borrowing costs or a greater tolerance for risk.

“Versus what people imagine a government-owned corporation could do, this thing is going to be much greyer and more sober. This is not the second coming of the 1918 SEC, and it’s not even a restoration of the 1992 SEC.”

D’Ambrosio insists the competitive neutrality requirement is “not new”.

“The reality is, state government investments, whether they are in hospitals, health cover, health services, schools and the like, there is a competitive neutrality obligation on governments,” she says. And the SEC is no different. But where the SEC will be different is that it will actually accelerate the move towards getting those renewable energy targets met and beaten.”

The 10-year plan was developed with the help of an advisory panel of energy, business and consumer experts, including Australia’s eminent former chief scientist Alan Finkel, who quit his role in June, citing personal reasons. Mountain, who was not on the panel, resigned from his role providing advice and feedback to the government soon after Finkel quit.

Panel member and long-time consumer advocate, Jo Benvenuti defends the plan and says that by accelerating the transition to renewables, and support to households struggling to electrify their homes, the SEC would also help Victorians with power bills.

“The SEC will help more vulnerable Victorians to take up technologies and options that help reduce their power bills and emissions,” says Benvenuti.

“This is important because households can benefit from electrification through lower energy bills now, but those comparative savings will increase over time for electrified households, as fossil fuels are predicted to become more expensive.”

She describes the SEC as “a modern and future looking version of the old”.

“It will be catalysing the replacement of fossil fuels with renewables, playing a key role in attracting and training the next generation of energy workers and supporting households to electrify by providing products and solutions that make it easier to benefit and reduce bills.”

Reviving the SEC was always going to be a slow burn, even under Dan Andrews firebrand profits-for-the people model. But as details trickle out and reality dawns, could it fizzle?

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