I attended an excellent function on electricity distribution pricing at Customs House, Brisbane last night which was organised by the UQ Energy Initiative. Panelists included John Pierce, Chair of the Australian Energy Market Commission (AEMC), Tony Bellas, who recently chaired the Queensland inquiry into network costs, and Tony Wood of the Grattan Institute. One of the issues discussed was “gold plating” of the network, i.e. over-investment in the network by electricity businesses, which Prime Minister Gillard identified last year as a major driver of electricity price rises.
AEMC Chair John Pierce appeared highly skeptical about the gold plating argument, noting that, from his experience sitting at the Cabinet table as NSW Treasury Secretary, Governments are keenly aware that capital invested in the electricity network is capital that can’t be invested in roads, hospitals or schools. Based on his comments last night, and this interview from last year (High power rates: it’s a poles and wires story), Pierce appears to believe that the real issue is the very generous rate of return allowed electricity businesses such as Energex and Ergon relative to the risks involved.
My previous posts on the electricity network include: