Rod Sims and ACCC takes on power affordability

The energy debate is clouded by myriad issues around clean energy targets, sustainability and reliability.

Woolies chief Brad Banducci. Illustration: Sturt Krygsman.

The energy debate is clouded by myriad issues around clean energy targets, sustainability and reliability and the like, which is why ACCC boss Rod Sims is excited he has two projects ahead focused entirely on affordability and availability.

Consumer interests have been wrongly relegated by the lofty debates on the other issues.

The Australian Competition & Consumer Commission’s electricity inquiry, which will be subject to a draft review in September, looks entirely at what has driven prices higher and what can be done about it. Sims floats the idea that intervening to remove the licence to operate is one potential remedy.

He will outline the issues in a speech at his annual regulatory conference in Brisbane today, but the key is the actual focus on the fact that not only have prices jumped 15-20 per cent recently but that they have doubled over the 10 years after inflation.

“We have a huge energy affordability problem,’’ Sims rightly declares.

There are a string of reasons why, but the question is how the ACCC can address the issues to help moderate their impact beyond focusing public attention on the reasons.

Sims will say there are many links between affordability, reliability and sustainability. “One link that is often neglected is that to deal with sustainability you need a social licence,” he will note. “Australia’s current electricity affordability problems threaten this.”

In rough terms, 50 per cent of the cost of domestic electricity is network-related, which includes the poles and wires to get it to premises, 35 per cent is the generation and 15 per cent is retail costs.

The fact we have three retailers who control 70 per cent of the market and 50 per cent of generation is one issue.

Lack of consumer participation is another, as shown by this week’s Australian Energy Market Commission report that showed the big three in Victoria earn 40 per cent bigger gross profit margins than those in any other state, or 7c a kilowatt hour against 5c north of the Murray.

Sims will today note: “We seem to have high standing or default prices which for a range of reasons are not being competed away.”

He will say: “The ACCC will look closely at retailer behaviour and offers to see if there are ways to help people find much cheaper electricity offers.”

Sims will bang the drum again about state governments that loosened the regulations on distribution monopolies in part to boost the privatisation proceeds.

It worked in NSW, which collected $23 billion from the partial sale of its distribution assets, but consumers are paying double what they did 10 years ago and to compound the issue the state backed an appeal against the regulator’s ruling that Sims says will cost NSW and ACT consumers up to $6bn more for electricity.

Sims supports Energy Minister Josh Frydenberg’s move to limit regulator appeals to legal questions even if this just raises the barrier for appeals rather than blocking them completely.

He was less impressed with the NSW government decision to allow AGL to buy the Macquarie and Liddell generators in the state, which “particularly increased the level of vertical integration in the industry.”

The same deal applies in Queensland, where three generators were combined to two and Sims will note that, when the government intervened in direct bidding, “wholesale prices fell immediately”.

Sims will also attack “some stunningly over generous green schemes”.

“The cost of this was smeared all over electricity consumers, a straight subsidy to those with solar panels from those without them,” he will say.

Ford power shifts

Rod Sims is also taking on one of the world’s biggest carmakers, Ford, alleging unconscionable conduct and misleading statements over its handling of problems with its “Power Shift Transmission” that has been an issue for the company worldwide.

The ACCC concern is not so much with the technical fault but the way it was being dealt with, arguing the big car companies tend to simply extend warranties over troubled parts rather than fixing the problem or, better still, not selling faulty cars.

Ford issued a strongly worded statement rejecting the claims, which it will fight in court.

Unlike other claims against carmakers such as Volkswagen, where the issues were dealt with offshore, this action against Ford is a global first, according to the company.

Last year Volkswagen was in the firing line over its attempts to defeat diesel emission standards.

Even though it has already changed its chief executive and paid $US19.6bn in criminal and civil fines for much the same conduct in the US, VW is fighting the ACCC claims in Australia.

Next month the ACCC will release the draft paper in its car industry study, which focuses on the way the car companies’ deal with consumers.

The Ford case will not be the last action.

One issue that caught the ACCC’s eye was the “PowerShift Ownership Loyalty Program”, under which if you take the car back to the dealer if you believe it is not performing to expectations, the company will buy it back.

But if the carmaker thinks it has fixed the problem — it won’t pay back the full cost of the car. This means while offering you any other car in the showroom you will have to pay the listed price and it won’t refund the full price that you paid on the original car.

The ACCC is aiming to open competition in the service market by ensuring the sellers make full service details to the consumer and actually fix or redress problems, rather than hide behind ­warranties.

Big box plans

The Large Format Retail Association speaks for 30 per cent of retail floor space, $67bn (or 22 per cent) of sales and has an obvious focus on planning issues.

It has four conferences a year, the next one at the Brisbane Hilton on August 17, when one of the speakers may be David Di Pilla, who as a member may outline his plans to roll out new stores at some old Masters sites.

The idea is to open one store in each state later this year, including at South Morang, the fast-growing outer suburb in Melbourne’s north, and Maitland in NSW with anchor tenants including Spotlight, Anaconda and Chemist Warehouse.

In the meantime, Woolworths is hoping it may be able to wrap up its deal with Masters joint venture partner Lowe’s some time ahead of its results presentation on August 23.

The estranged venture partners have had their arbitration and a third valuer appointed to settle the final sum to work out who owns what to whom.

Some seven months after the $3bn snafu, one might guess all sides are keen to wrap up.

Elsewhere in retail, it is worth noting Coles and Woolworths sell house brand water products in 24 packs of 600ml bottles for $6, or 42c a litre, which compares with the $1-a-litre price available on Coca-Cola Amatil’s Mount Franklin product.

Still water is growing at 15 per cent a year, while carbonated soft drinks and ambient fruit juices are going south, so who can blame the behemoths for pushing their own Asahi (Schweppes)-supplied product in competition with Mount Franklin.

Woolworths also gets supply from Unpureed and Wetfix and water is water.