Origin wants end to electricity price caps

Australian
Tuesday 19/8/2008 Page: 34

CONVINCING state governments to abandon electricity price caps so consumers aren't shielded from the cost of a carbon-constrained economy is the biggest challenge confronting the introduction at the federal Government's emissions trading scheme, one of Australia's biggest energy companies has warned. Last night Origin Energy. which is facing a hostile takeover by BG Group. stepped up its campaign for state governments to scrap electricity price caps so that the increased cost of carbon would be passed on under the proposed scheme.

"The issue of cost pass through is among the most difficult confronting the Australian Government, because responsibility for price caps which continue to exist in states around Australia remains with the states," Origin Energy executive general manager, corporate development and communications. Carl McCamish said in a speech at the fourth annual Australia New Zealand Climate Change and Business Conference in Auckland yesterday.

"Providing certainty to investors about the processes that will deliver an effective national market in the long term remains key to the success of the Australian carbon market." Australian Power & Gas has previously warned that the interaction of the market based emissions trading scheme with the state price caps could see a repeat of the 2000 and 2001 Californian electricity crises, where soaring wholesale prices left energy retailers paying more than they were able to charge customers under price caps, which resulted in bankruptcies and costly public bail-outs of utilities.

Despite resistance to the move as consumers and small businesses digested the impact of rising interest rates and high oil prices, state governments signed a deal with the Commonwealth in 2000 through the Ministerial Council of Energy agreeing to scrap price caps on a state-by-state basis once the Australian Energy Market Commission agreed that there was enough competition between retailers.

Mr. McCamish, whose address comes ahead of today's public dialogue between Prime Ministers Kevin Rudd on his first visit to New Zealand and Helen Clark, said the Commonwealth must ensure the states avoided "proliferation of schemes in areas like energy efficiency and solar feedin tariffs which overlap across the states, often with different rules".

"These schemes add cost for companies but, more importantly, they add costs far consumers." Despite the push to ensure that price signals were passed on to consumers, Mr. MeCamish said households hardest hit by an emissions trading scheme should receive assistance. "This should take the form not just of direct measures. for example through the tax system, but also of energy efficiency programmes that will reduce energy bills in perpetuity." he said. "

This compensation will he paid for by emitters by the price we pay at auction for our permits.'' Mr. MeCamish said Origin Energy's operations in both Australia and New Zealand meant that the company was ''likely to bear one of the higher compliance burdens" in both countries and so welcomed the similarities between the schemes, including that they were both Kyoto compliant, included all six greenhouse gases and were both mandatory, broad-based cap-and-trade schemes which had non-compliance penalties. "At Origin Energy we strongly support the governments of both Australia and New Zealand and, I might say, the opposition parties in both countries in leading Australia towards lower emissions future." he said.

Despite concerns from some analysts that linking Australia to the New Zealand scheme could indirectly expose Australia to the European Union scheme. Mr. MeCamish said international linkages between Australia and New Zealand were "a very real possibility in the future, so long as the robustness of the two schemes is protected through establishing high standards in both schemes for measurement, compliance and verification".

Booz and Co ETS specialist Rob Fowler said there was some merit to linking the Australian and New Zealand schemes. "It's probably a useful starting paint although the stance that New Zealand has taken about fully integrating its scheme with international carbon markets means Australia would be exposed to that price straight away," he said.