25 Oct 2017

Essential services — energy, retirement savings and communication — have been mangled by politics

Politics makes a mess of essential services

  • The Australian
In a press release last Monday, ACCC chairman Rod Sims said: “Consumers and businesses are faced with a multitude of complex offers that cannot be compared easily”.
He was talking about electricity, but he could easily have been referring to the NBN and superannuation as well.
Each of these essential services — energy, retirement savings and communication — have been mangled by politics, and as a result are hopelessly confusing and expensive.
Complaints about the NBN jumped from 10,487 to 27,195 last year, or 75 per day; this week former Liberal Party treasurer Peter Costello effectively proposed nationalising super; and the ACCC reported that electricity prices had gone up 63 per cent in 10 years.
Progress was unexpectedly made on energy politics this week when Energy Security Board, and its chair Kerry Schott, came from nowhere and galloped through on the rails brandishing something called a National Energy Guarantee, to snatch the prize as the solver of Australia’s excessive energy prices from Alan Finkel.
The NEG was needed because Finkel’s Clean Energy Target suffered from poor branding. He should never have used the word “clean” — it was a red rag to the pro-coal, anti-renewable brigade.
Clean? Carbon dioxide isn’t dirty! What are you — some kind of renewables loving leftie nut? And “target” was the wrong word too — reminiscent of emissions targets.
It didn’t matter what was in the policy, the CET was never going to get past the Coalition party room because of its labelling.
Schott’s branding builds on the word “guarantee”. Brilliant! There’s been a bit of confusion because some people think it’s an actual guarantee, rather than just marketing, but we seem to be getting past that.
The CET and the NEG were invented by Alan Finkel and Kerry Schott, respectively, to achieve two political treaties: first within the Coalition and then within parliament, specifically between the Coalition and the ALP.
The first has basically been achieved, with only Tony Abbott still arguing for differentiation from the ALP at any cost.
Turnbull could possibly get the NEG through parliament with support of the crossbench senators, but that would be pointless. What’s required is agreement between the two main parties, so business and investors know the policy won’t change with a change of government and can invest confidently in the meantime.
It’s not yet clear whether Turnbull wants to try for a bipartisan policy. He is still flailing at the ALP using energy as a differentiator, which he will have to give up to produce the bipartisan policy that business is demanding.
Meanwhile the whole thing is shifting under the politicians’ feet. The basis of electricity is changing from commodities to technology, as energy analyst Bruce Robertson told me this week.
It’s a profound shift that makes all predictions about the future of this business unreliable. Commodities (coal, oil, gas) rise in price over time; technology prices fall, at unpredictable rates.
It definitely means electricity generation worldwide is now shifting from fossil fuels to renewables and batteries no matter what ­scientists say about global warming, and politicians decide to do about it. The NEG (or the CET or an ETS) is now only about regulating the speed of that transition so Australia can meet its Paris commitment.
That results in the “emissions guarantee” in the NEG, an admission that the previous (Abbott) idea of paying for emissions reduction — “Direct Action” — didn’t work, so retailers now have to be forced to do it ... anything but a market mechanism, which was the ALP’s idea and to be avoided at all costs, including the merest hint of permit trading.
Superannuation and the NBN are the other two victims of politics.
They were both invented by Labor, so the Coalition is against them. As a result, they now suffer from neglect and monopoly capture.
The NBN has too many points of interconnect (POIs) so a cartel of four wholesalers has developed. Telstra, Optus, TPG and Vocus are the only firms capable of connecting to all 121 POIs. The NBN Co privately acknowledges this, but says it’s too late to change it to reduce the number of POIs to something that would encourage true competition.
The failure of competition is the main reason there were 75,000 complaints last year, and probably still more this year.
The pricing structure is complicated and opaque because customers are required to choose both speed and data plans, which produces too many combinations. There should be one speed and a range of data plans, as there is with mobiles.
NBN Co acknowledges this as well, but apparently it’s too late to change this too. That’s because in order to earn the required return on capital, it would have to charge too much for that one speed, so there are cheaper slow-speed plans, which people buy thinking they’re getting high-speed fibre broadband, and end up frustrated and complaining.
Australian superannuation is the world’s largest cartel: thousands of funds and advisers are in on the joke, skimming billions in fees each year and making sure no customer knows what’s going on.
All efforts to improve the system through competition alone are doomed because customers don’t know, and can’t really find out, the only two things that are relevant to their choice: fees and returns.
Without clear, understandable and consistent information, competition cannot exist.
This week Peter Costello proposed a single government-owned national super fund, operated by the Future Fund, something I proposed in this column in August, and my friend John Wylie also proposed in a piece in Business Spectator in 2014.
It’s a good idea. The government should nurture the inner Marxist it has discovered this week with energy and extend it to super.

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