Coalition's Macfarlane tells states to exit energy market

Ian Macfarlane, shadow minister for energy and resources, has given some candid advice to state premiers ahead of Friday's Council of Australian Government (COAG) meeting in Canberra: get out of the energy market.

Mr Macfarlane said efforts to contain energy prices, such as Queensland's limit on power-price increases and WA's cap on gas-price gains, would backfire on the state governments once the restrictions are lifted and prices soared.

"One thing that still puzzles me is why any politician wants to be involved in setting electricity prices, because you never set it right," Mr Macfarlane told the Energy Efficiency Council conference in Sydney.

He said that with electricity prices now replacing petrol prices as the breakfast-table conversation, it made more sense than ever to hand control over to independent regulators. "In terms of getting politicians out of the electricity market, I can see a huge incentive, because when the lights go out or the prices go up, you're not going to get the blame."

Electricity prices are set to dominate the COAG meeting, with Prime Minister Julia Gillard expected to call on states to accept reforms ranging from the introduction of so-called time-of-use charging and smart meters, to other measures to limit excessive "gold plating" or over-investment by network operators.

Mr Macfarlane said the Prime Minister would struggle to make headway without offering compensation because some reforms would hit state revenues.

"There's an old saying: 'Never stand between a premier and a bucket of money'," he said. "If you understand that principle, you understand that with money you can do anything with a state premier."

While not naming NSW and Queensland, which own their states' electricity networks, Mr Macfarlane said some states had perverse investment incentives. "They're actually making money out of this at a higher rate than perhaps they would if they were investing in normal investments."

While states have backed giving up some of their regulation powers to a beefed-up Australian Energy Regulator, getting their agreement will need negotiations.

"In the end, if you want to do away with state-based regulators, you have to give them enough confidence that the AER will do the job just as well, and that they won't be disadvantaged."

Mr Macfarlane said the coalition might support the roll-out of a national energy efficiency scheme, but not before the details are clear. A move in that direction, though, is in any case unlikely to succeed before the next federal elections, due late next year.

"I don't think that in the shadow of an election is the time to negotiate with the states for a national energy efficiency scheme," he said.

Even so, such a program would be better taken out of the hands of state governments.

"Experience will show us that wherever states run schemes, that they are inefficient, so it's an irony that the states are individually running inefficient energy efficiency schemes."

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