TL: PUBLIC BODIES REVIEW COMMITTEEINQUIRY INTO CORPORATISATION OF THE STATE ELECTRICITY COMMISSION OF VICTORIA (GP) SO: Greenpeace Australia DT: 1991 Keywords: energy governments legislation greenpeace electricty gp australia australasia / Introduction Greenpeace welcomes the opportunity to have an input to Victoria's consideration of corporatising its Government Business Enterprises (GBEs). This process of consultation prior to drafting legislation is in marked contrast to the approach of certain other states. Greenpeace is concerned not so much with corporatisation in its own right, but with the rules, conditions and processes under which corporatisation takes place, and which will effect the environmental performance of GBEs, particularly the implementation of greenhouse gas reduction targets. Ensuring that greenhouse targets are met The Victorian government was the first Australian state to adopt a greenhouse gas reduction target, and is probably the most progressive state in Australia in pursuing the target. Two GBEs are clearly critical to implementing the greenhouse target - the State Electricity Commission of Victoria (SECV) and Gas and Fuel. * The SECV is the largest single producer of carbon dioxide (CO2) emissions in Australia * The SECV produces 53% of Victoria's CO2 emissions * Gas and Fuel produces 13% of Victoria's CO2 emissions * Despite the target Victorian electricity use and hence CO2 emissions have been increasing since 1988 * The SECV is continuing construction of the Loy Yang B power station, claiming that can't afford not to because of costs already sunk into the project and penalty payments for broken contracts. From a greenhouse reduction point of view cancelling the project is the best solution as brown coal produces more CO2 than other fuels used for electricity generation. * In fact no more brown coal power stations should or need be built. Instead expansion of the SECV's Demand Side Management Programme into real Least Cost Planning should be undertaken. Will corporatisation help or hinder SECV and Gas and Fuel achieving the greenhouse target ? The answer is that it could either help or hinder, depending on the rules. For example corporatisation could hinder achieving the greenhouse target if it is treated as a Community Service Obligation (CSO) for which the GBE must be reimbursed (as in Section 11 of the NSW State Owned Corporations Act) * This would give the GBE the incentive to overprice any proposed greenhouse emission reductions, and scare the government with a huge bill. However corporatisation could be used as an opportunity to create a framework which helps the GBEs achieve the greenhouse target in the most least cost way for the community. * We know from global warming abatement studies that there are many energy efficiency investments that are both cost effective ways of reducing greenhouse gas emissions and more cost effective ways of delivering energy services to customers than building and operating power stations (Lovins, 1990; Jackson, 1991) * Yet a monopoly utility - whether corporatised or not - has little incentive to minimise the cost of greenhouse abatement. In fact if it is treated as a CSO it has the incentive to maximise the cost if it is to be reimbursed. There are basically two models of ways to overcome this problem - (i) Competition: * True competition is very hard to achieve in the electricity industry * Corporatisation could increase the market power of electricity and gas monopolies and not necessarily increase competition. (ii) Regulated monopoly: Regulatory oversight of utility's activities * What type of regulation is needed? Independent, open, public scrutiny of investment, pricing and greenhouse related activities. This in turn requires - - publication of draft strategic plans covering demand forecasts, supply and demand management options and greenhouse abatement strategies - an independent regulatory body with expertise to scrutinise these plans - public participation through submissions, hearings etc - the regulatory body to have inefficient executive power to enforce its decisions. Lessons from other regulatory bodies There is a need to take the most useful elements and lessons from the Trade Practices Commission, Prices Surveillance Authority, Landuse Planning/ Environmental Impact Study Process, US Public Utility Commission (PUCs) experience and UK Office of Electricity Regulation. Public Utility Commissions are completely independent regulatory bodies which are set up to oversee monopoly companies to ensure that they provide a `reliable and non- discriminatory service, and to place their price setting, and other aspects of their operation under regulatory control' (Association for the Conservation of Energy, p.3). The above discussion provides background to the following comments on issues raised in the Public Bodies Review Committee's Discussion Paper on Corporatisation. COMMENTS ON ISSUES FROM THE DISCUSSION PAPER ON CORPORATISATION 6. Rights and Responsibilities 6.2 Consumers + 6.3 The Community As utilities operate as monopolies, public interest must be protected by regulation from an independent regulatory body and by public participation in the decision making process of the GBE, through consultation, hearings and public advocacy by the regulatory body itself (see below). 117: `...the community also has the responsibility that the GBE is performing its task as best it can ... and ... community service responsibilities ...' To carry this out there must be a formal mechanism so that the public has a strong enough voice to match a large utility. In the USA the PUCs formally provide for real public participation, through consultation and public hearings. In order that the public's view be adequately represented some States fund Public Advocates Offices who represent consumers at hearings. Californian PUCs split their staff into public advocacy staff and professional adviser's staff. 6.5 Freedom of information 127, 128, 130: In the case of a monopoly utility whether it is a government agency, corporatised or privatised, it should be subject to the Freedom of Information Act. If a private company is allowed to act as a monopoly they must be subject to strict regulation in order that they act in a public not merely private interest. This is the underlying belief of utility regulation in the USA. 7. The Role of the Parliament, Ministers and the board of Directors 143: `...corporatised GBE abusing its market power....the government may wish to regulate such behaviour.' The government should regulate such behaviour for reasons made clear in the introductory discussion. 144: `Should the regulatory responsibilities be separated from ownership?' The shareholder Minister and the Minister responsible for regulation of the GBE must be separated. 8. Community Service Obligations 162,174: CSOs set by state governments include `support for local mining and manufacturing' and `concessions to large users', these need to be reviewed to accommodate Least Cost Planning, and hence greenhouse gas reduction objectives. 164: `...inappropriate price signals received by groups benefiting from CSOs' resulting in `...inefficient patterns of usage of the good or service...' Externalities must be costed into the price of a service resulting in the more efficient use of service ie the commodity is energy not electricity. A major CSO of energy utilities is the subsidisation of country consumers by urban consumers resulting in an inappropriate price signal for country dwellers. Real pricing will make renewable sources of energy economically competitive, especially in remoter locations. 174: Will environmental obligations be treated as CSOs? If they are, and the utility is to be reimbursed for the cost of carrying them out, the utility has the incentive to maximise the cost. It would be vastly preferable for environmental obligations to be part of the GBE's legislation or statement of corporate intent, in order to give the utility the incentive to minimise the cost of acting. 9. Accountability and Monitoring of Performance 9.1 The need for strict controls 180,181: Considerations other than commercial ones should be taken into account such as social, equity, environmental considerations. For example PUCs oversee utility investment decisions to ensure that the utility has considered all available investment options including Demand Side Management and lowest cost options for consumers. Regulators must obviously be involved prior to the investment decision being made. 182,183: The GBE's should be required to publicise their strategic demand and supply side plans for the next few years. Otherwise it would not be known whether or not things are being done in a least cost way. 185:`...who should monitor performance of GBEs?' The options suggested are inadequate. What is needed is an independent, open, public regulatory body which: - has the professional staff to scrutinise GBE plans - calls for public submissions and hearings - has executive powers to enforce the decision. 9.2 Standards of disclosure. 188: Strategic supply and demand plans, pricing and greenhouse strategy plans should be publicly available and subject to public scrutiny through submissions, hearings etc. 10. Financing and Performance 10.4 Pricing Policy 222 `...who should determine all aspects of pricing policy?' `Tariff setting process is one of the most visible powers of the PUC' (Association for the Conservation of Energy, p.8). The proposal of a Prices Commissioner who has the powers of the Trade Practices Commission is similar to the powers that a PUC has over price setting. Here the utility must apply to the PUC for a price increase and public hearings are subsequently held. 10.5 Diversification 225: It is important that the SECV and Gas and Fuel diversify into the energy service market, capable of delivering energy services for electricity, gas, solar and efficiency measures at least cost to the community and customers. 227: Accountability concerning diversification would be present under a PUC type body. The energy industry as a whole needs scope to diversify into the energy service area. The relationship between the large utilities such as the SECV and local distributors needs to be changed so that the latter are not forced to take a bulk supply of power from the former enabling the distributors to diversify into energy efficient services. 12 Competition 12.1 The need to introduce competition 242: Competition is held up as the ideal but this is very hard to achieve in the electricity industry. In the only country which has attempted this so called competition - the UK - it has resulted in two dominant generation utilities behaving little differently to a monopoly utility. 244: Corporatised GBEs which are monopolies and difficult to make subject to competition need to be adequately regulated. 12.2 Regulation 246: The separation of generation, transmission and distribution is useful only if the distributors are not limited to buying electricity or gas from the SECV or Gas and Fuel. Distributors should be allowed to diversify into energy services, not being saddled with the capital cost of building power stations. Therefore they would not have to sell excess power and would have more incentive to sell least cost solutions to consumers energy service needs. 250,251, 252: What kind of regulation? The experience over seas is that because of the market power of industry, either price or rate of return regulation is needed. 12.3 Supply of inputs 254,255: Inhouse supply enjoys a monopoly position, for example the SECV owns its own coal mines. This is not efficient as the utility is tied down to coal fired power stations, there should be other competitors to energy supply creating a level playing field for Demand Side Management and renewable energies. 13. Legislative Requirements 13.2 Legislative compliance A corporatised GBE will be more like a private company so it should be subject to the same legislation that a private company is, especially the Trade Practices Act, Corporations Law and Prices Surveillance Authority. Corporatisation without legislative compliance is the worst of both worlds. Neither the control of the Minister of the Statutory Authority, nor the regulatory checks and balances applied to private companies would be present. It would create an unregulated, unaccountable monopoly. REFERENCES Jackson, T., 1991, "Least-cost greenhouse planning: supply curves for global warming abatement" in Energy Policy, Volume 19, Number 1, January/February. Lovins, A., 1990, Report to the Minister for Industry and Economic Planning on Matters pertaining to Victorian energy policy, Rocky Mountain Institute, USA.