Over the past year, I have participated as a consumer volunteer to comment on a 150-page document from the Australian Energy Regulator (AER). The document recommended the Rate of Return (ROR) for the monopoly suppliers of electricity distribution and transmission. As a separate activity, the AER sets the rules for the value of assets or regulated asset base (RAB) to which the ROR is applied. The AER gives the ROR to the transmission and distribution companies, who then calculate the prices they will charge to obtain their return on Capital on their calculation of the RAB. The AER monitors and checks the RAB and the prices to ensure the companies only get the return to which they are entitled. However, the AER needs more resources and authority to check compliance.
The AER finances the Consumer Reference Council CRC, where I was invited to comment on the ROR as a consumer representative volunteer. The AER reports to the Australian Energy Market Commission, whose members are appointed by the State and Federal Governments.
It has taken me some time to understand what was being asked and how the system worked. The consultation has come to an end. This article summarises what I have found and recommends actions to address the issues.
Observations
- Australian Consumers are paying at least 50% more for the transmission and distribution of electricity than they should.
- Australian consumers have no opportunity to invest in or have any control over the transmission and distribution businesses on which they depend. The control and profits are held by Private Equity and Foreign Sovereign Funds.
- Large electricity generators operate in a wholesale market open to manipulation.
- Retailers are an unnecessary and extra cost and can be gradually replaced with local community organisations using local Community Banks handling the billing through members’ bank accounts.
- The electricity system governance and ownership are increasingly centralised with overseas investment even though the system itself is becoming distributed.
Recommendations
- New Capital for electricity generation, transmission, distribution, and billing be sourced from Australian Consumers through Community owned banks. The Rate of Return can be set at the average for allocated pensions from Industry Funds.
- All transmission, distribution, metering, retail, and generation businesses require some of each consumer payment to include the purchase of Capital in the companies supplying it.
- Consumers have representation on the boards of all businesses where they own Capital.
- The transfer to the new system starts by deploying Community Batteries across Australia with local Community ownership and governance of the Batteries. Local solar generation can join and become a Community owned and governed.
Background to the Recommendations
The High Cost of Monopoly Services
Monopoly Services have a high cost because free markets cannot control the cost of services because there is no competition or alternatives. When Private Equity purchases a monopoly, they replace their invested Capital by extracting Capital and replacing it with money from consumers and borrowings from other entities they own. After a few years, the Capital they have not taken out of the system is a fraction of their Capital at risk, but they still collect a return on all the Capital in the business.
A solution is for consumers to purchase some Capital each time they pay an invoice for electricity and for all new Capital to be sourced from consumers. In the absence of community organisations to govern the consumer share of Capital, it is recommended that local Community owned banks organise the investments and look after the returns on investment using bank deposit accounts.
If consumers have Capital in the Companies, they should have representation on the decision-making boards and access and input into investment and pricing decisions. This will assist in controlling Private Companies' excesses and strengthen the regulators' hand.
Extending Community ownership to all parts of the electricity system
All parts of the electricity system, including generation, can use the same approach of transferring ownership to consumers and local investors. The approach can start with Community Batteries with Community solar panels and wind generation.
