Links to customer value – Future Energy Supply Strategies

Regulatory tests and security of supply –Sounds so elegant so simple when it is a strategic position statement or statements. Queensland gives some very good examples in recent times.

The first being the effort Ergon Energy put into the work to secure power supply upgrades to the ‘Granite Belt’ and that process started in 2011. It was abandoned 17 September 2014. What changed?

Then there is biofuel potential in Queensland. Why the focus on non-fossil sourced fuel now?

Then there are the Coal industry woes – China does not want the Galilee Basin coal type – it is too dirty for its cities!

Back to Ergon: After the Warwick Daily News headlined its story, 15 September 2014, “ERGON pulls the plug” – The story was quoting the Qld Energy Minister – Mark McArdle, as announcing the end of duplication of the Warwick to Stanthorpe power line and the controversy over the routes being selected. Ergon Energy then in a letter 17 September 2014 wrote to the landholders that were to be affected by the proposed duplication of the power line and formally advised they will no longer be effected. Clearly indicated for making the decision were the outcomes of the regulatory test(s). How could the regulator test find as it did to stop the project, even sway the politics of the project? Well, the key findings were:

  • The reliability standards changed on 1 July 2014. There is a heightened need to weigh the costs against the value to customers.
  • Existing demand is slowing and the evidence future demand will continue that trend if not further reduce. Certainly not inside the regulatory forecast periods.
  • Rising costs can no longer be blamed on rising demand predictions, that waste and excess must now be addressed for efficiency dividends.
  • There was very little to be concerned about with the reliability of the network as it stands now.
  • There is an edit the focus should be on affordability. That capital expenditure must be justified as needed.

Another way of putting all this is – Ergon Energy or any other supplier cannot get away with gold plating and excessive redundant equipment and infrastructure just because it gives them comfort – it must give value. How can you get value? You can improve the technology offering better monitoring, performance and be ‘smart’. The later is as simple as balancing the demand supply equation with incentives and/or implementing demand management strategies.

And, yes there is more: alternative energy supply is opening being touted as ‘planned initiatives’ What alternative energy? Call it what you like – clean, green or whatever. But what will stick is not only ‘proven technology’ as the descriptors now includes ‘likely technology’ of distributed type and ‘battery’ storage.

As an aside did you know as ‘battery’ can be a physical volume exchange as well as an electron store!

Does this mean technology will save coal? It is possible – but at the end of the day it will get down to the economics and it is not looking all that bright for coal as sustaining its position even for baseload demand.  Even our world partners are turning their backs on coal – it is now seen as too expensive in terms of the outlook, and the economics, the environment and the cost of the process to make it ‘clean’. Recent Chinese regulatory changes are testimony to that issue. Then there is the story -AngloAmerican boss sees coal mines closing at a rate of one a fortnight http://www.goulburnpost.com.au/story/2569015/angloamerican-boss-sees-coal-mines-closing-at-a-rate-of-one-a-fortnight/ … – no a good look is it!

Yesterday, 22 September 2014, in Canberra the Minister for Industry Ian MacFarlane addressed a biofuel forum on the strategy for Queensland to take the lead on bio fuel production. This follows a paper released through the Queensland University of Technology prepared by Corelli and Deloitte Access Economics. The paper called “Economic impact of a future tropical bioenergy industry in Queensland”. It talks of the ‘potential’ of new manufacturing facilities, and how biofuels can be used as an area of increased focus in agricultural strategy.

What all this means is that traditional energy is heeding a need for a strategic change of heart. Despite what is being said about business as usual, that is not the behaviour behind the scenes and increasingly it is coming to the fore that change is inevitable. The EUAA calls it a paradigm for the industry. The question is what part of the pack are we to become. Australia has always been world renown for finding solutions. What we have not been good at is getting things done, besides talk about it that is.

And, there is more: some government facilitations would assist in industry establishment. Not our quote, it is taken straight from the above papers key findings.

‘good faith’ – a legislative event or an earned value!

” Australia now has some of the highest electricity costs in the developed world” – the claim was part of a upcoming conference promotion. Why is this so? We can easily say the reason is a range of federal and state government policies. With some bemusement we could even say the amateurs must have been in charge when all this happened, and they could not help themselves but to make changes without understanding the consequences. Another way of saying it is they thought ‘good faith’ was a legislative event and not an earned value!

If you carry over the ‘good faith’ argument as a legislative event, you can easily see how the intention could be manipulated according to the stronger lobbying power of the day. There does not need to be a business case for the policy, it just needs to be a positioning matter for what is ideal. In terms of positioning you might see how the carbon price became known as the carbon tax in the repeal legislation (the definition of ‘price’ was changed to reflect emotive wording ‘tax’), that the renewable energy target became a plaything for posturing the adverse effects and without evidence is said to have contributed to cause energy prices to rise.

It still happens, again and again. The driver – we need change to show we are positive about business. Business according to amateurs is ‘doing something’, and that so important! Think of these examples: Gas market reform needed, it will increase gas production and ease the pricing situation. Maybe it would – if you had a direct one on one relationship between the supply and demand. It is not that simple and business professional understand this, but a graduate and an evaluation team for a policy might not. With interest we note that the EUAA has an upcoming program based on New Energy Paradigm – Better Energy, Better Business. The word ‘better’ we assume means the amateurs will be kept away and only the business astute will be debating the program! The logic being a new paradigm forms the basis of something. But what if the carbon tax or RET can no longer be blamed for some of the highest electricity costs in the developed world. What do you blame then? What then would be the outstandingly clear or typical example or archetype of the cause? Again it would not be hard to consider the amateur was being too ready to expose a popular view without sufficient knowledge of the facts.

Pondering this issue along came a story about the Sydney Second airport and a mad bit of posturing by the small business Minister to an audience on how they will fix who ever gets in their way. The story:

Airport chief slams minister’s delay statement, 06 Sep 2014, Sydney Morning Herald, Sydney: Badgerys Creek Talk of ‘another partner’ –

“A key federal government minister has warned Sydney Airport that if it delays the process of building an airport at Badgerys Creek, the government will find another partner to help build the project.

But that warning immediately produced a backlash from the chairman of Sydney Airport Corporation, Max Moore-Wilton, who stressed that Sydney Airport retained the first right to build another airport in Sydney. He also questioned the seniority of the minister delivering the warning.

“This is not a game for talented amateurs,” Mr Moore-Wilton said. “This is business.””

The illustration here is a very important one. It is business that works to contain costs and it is opportunists that are the costs.

Possibly the more damming is when “Asked about Mr Briggs’ comments, Mr Moore-Wilton said: “We are following in good faith the provision of the legislation governing the process for considering a second Sydney Airport.

I imagine since it’s a legal obligation, Mr Briggs ought to consider his statements very carefully … we paid for the right to negotiate.”

It is all about the ‘right’ is it not?

For those that did not know Max Moore-Wilton, in the days before being Chair of Sydney Airport was secretary of the Department of Prime Minister and Cabinet. We guess he can see an amateur from a long way off and knows business very well.

Govtape – emissions, consequences affecting rational thinking

Wintelboff recently had a dilemma to resolve in a brokerage agreement – the best energy price was from a renewable sources retailer. The problem was the transition from the carbon price repeal might actually mean the supply would be from a brown coal generator. How could this happen? It happens when the market is artificially manipulated. When those that advocate and love liberal attitudes to the market it is very disappointing that intervention is done purely on the basis of lobbying and not on evidence.

Back to the outcome: The client decided a black coal generator was the better option, and that Gentailer made it very attractive in terms of an offset for their emissions. They carried no penalty for a solar array on the premises, as its purpose was to address the peak demand issues of the daytime energy use. On balance it was a good deal. Not perfect, however, much better than the attempts of interventionists.

We have found a story that backs up the recant above and tells a frightening story of how intervention brought on by ideology can have consequence – even after a very short time:

http://www.canberratimes.com.au/environment/climate-change/emissions-from-energy-generation-jump-most-in-eight-years-after-carbon-price-axed-20140903-10by8d.html

Emissions from energy generation jump most in eight years after carbon price axed

‘Carbon emissions from the country’s main electricity grid have risen since the end of the carbon tax by the largest amount in nearly eight years.

Data from the National Electricity Market, which covers about 80 per cent of Australia’s population, shows that emissions from the sector rose by about 1 million tonnes, or 0.8 per cent, at an annualised rate last month compared with June.

That is the biggest two-month increase since the end of 2006, and came as a result of an increase in overall demand and a rise in the share of coal-fired power in the market, according to Pitt & Sherry’s monthly Cedex emissions index.

“It is highly likely that the trend directions of electricity demand, generation and emissions seen in the last two months will become set in place,” the consultancy said, adding that the emissions intensity of the power industry was rising after six years of falls.

Environment Minister Greg Hunt did not comment on the rise in emissions when contacted on Wednesday.

Australia’s bipartisan goal is to cut greenhouse gas emissions by 5 per cent below 2000 levels by the year 2020. The government scrapped the two-year-old carbon price in July……..

The share of black and brown coal in the national market rose to 73.3 per cent from a historic low of 72.9 per cent in July, and will probably rise further as gas and hydro start to shrink.

The addition of new wind and solar energy capacity is also about to grind to a halt with the industry anticipating the Abbott government will take an axe to the Renewable Energy Target.

The latest emissions figures come as the 20-megawatt Royalla solar plant, the country’s largest solar farm to be added to the grid, was officially opened in the ACT on Wednesday.

About 370 megawatts of wind in NSW and Victoria and 170 megawatts of large-scale solar are under construction, but “after that, there’s very little in the pipeline”, Pitt & Sherry principal consultant Hugh Saddler said.

Emissions from the power sector account for the largest emissions share of any industry, making up about one-third of Australia’s total. The industry is expected to see a rise of millions of tonnes of emissions in coming months as gas in Queensland starts to be diverted to exports rather than domestic use and the main hydro plants scale back output.

If Hydro Tasmania’s production drops back to levels just after the last drought, output will be about 9 terawatt-hours a year – down from about 12TWh levels before the end of the carbon price.

“If that switches to brown coal, it will be nearly 4 million tonnes” of extra emissions annually, Dr Saddler said.

The share of gas in the market was little changed last month from July at 13 per cent, while hydro’s share dropped to 9.1 per cent from 9.3 per cent, Dr Saddler said.

Wind energy’s share last month eased to 4.6 per cent from 4.9 per cent a month earlier. A windy July saw record wind energy production in the country.”’

 

At the start of this post, we said: a dilemma existed, the client wanted to be progressive, was presented with regressive and it was difficulty to get through the govtape! That’s it – it is govtape not redtape or greentape in the way!

What hurts more – dealing with energy contracts.

Measures or impacts – what hurts you more when you are dealing with energy contracts as a small, but described as large in National Electricity law, business? What factors affect your decision to enter into the contract? How do you stand up for your rights?

The first rule is do not expect consumer legislation to protect you! You may be surprised that energy regulations even circumvent your rights. For instance: The deemed provisions, and price during the contract period. Then consider the extraordinary fact the Australian Energy Market Commission (AEMC) is on record as saying the equivalent of ‘caveat emptor’ – buyer beware is sufficient protection.

In the case of Energy Service Agreement, Retail Energy Agreement or simply Contract for Sale of Electricity (the description referred to by your retailer) you should realise you are without ‘warranty’. You see without a warranty the buyer takes the risk. The supplier or energy retailer takes no risk. In most cases this is true if you are a small (large business).

A series of recent brokering agreements by WIntelboff has highlighted to the client that this risk is critical. Even intervention strategies can be protracted and lack a feeling of satisfaction for the client. Most might even be frustrated because it is costly to fight, and if they qualified for the Ombudsman to investigate there is the risk they will be told ‘no, too difficult’, or the equivalent!

One client has penned her concerns in trying to get a fair contract, and we feel compelled to air them for her:

“On receipt of XXXXXX offer of renewal of electricity supply to the XXXXXXX XXX, the Manager, passed it on to me to “check out” as I had (and am still) involved with researching the power industry and finding ways and means of reducing our power bills.

The initial offer for three years from a numbers point of view looked like a vast improvement on what we are paying for Power from XXXXXX at present.

However on wading through the thirty odd pages of contractual agreement I realised that it was one of the most complex legal documents I had ever had to consider.

I recommended to XXXXX we ask the advice of the ‘crew’ who had been guiding us through installing Solar Power for the Business for two reasons….

They had a greater understanding of the Industry and what affected the retail electricity market…and I was concerned about the solar panel installation and other power reduction strategies affecting the tariff adversely with the 160Mwh factor

My concern that the fine print was mostly one way…to XXXXXX with no real guarantees built in to protect us from penalties..

Bottom line is…

In my personal opinion, XXXXXX’s business methods with this are appalling and amount to business bullying. Expecting a XXXXXXXX (requiring managerial and/or Board Approval) to make a decision with 2 weeks of receiving their renewal…AND…stating that the time could be extended…but didn’t when I requested it …. is tantamount to fraudulent behaviour.”

CO2Land org feels that a truly competitive industry would have adequate consumer protection, and you would expect where it was possible to lose customers you would be concerned about adverse behaviour. You would even expect a civil response to your queries – more than just the family phone message of ‘why we are great people’. Actually, when asking one retailer if it was possible to change a threshold provision – The actual response might surprise you – the 300 MWh pa + customer was told “you are too small a customer to influence us to adjust or amend our contract”!

It gets really scary at this point. They don’t care? Why you might ask. Some speculation could be: They might be selling short in the market. As such they can make more money from ‘double dipping’ than dealing with you. For the long sell retailer they might just offer fantastic prices to fill the books and just raise the prices later. The really scary thing is it is not just the raw energy prices at play here. It can also be environmental charges and some government fee liabilities.  

If you do not believe us – just read your contract very carefully. Some terms and conditions might be expressly stated, and some overtly say you are screwed.

CO2Land org is aware of only one retailer, at this time, that includes an undertaking to not rise prices for the contract with the exception of those mandated by government. Even then, you might be a little nervous when you realise the retailer is government owned! What if they mandate a change? What if they sell to a private company and the condition of sale says you can charge what you like – eh, you are deregulated? But better the bird in the hand as they say. At least if done wrong by Government you can vote them out eventually. Unfortunately, retailers in the mean time might just laugh and say how can you hurt me!

It is disappointing that tactics and marketing are used to make you believe they are doing it for you, when the deal is something else it is their insurance – not yours, and you are the one paying.

Stop Press – small *described as small, should ask for up to 17 % Discount on their bill. But what penalties take it all back again + more – that is for another post. In the mean time just remember to look at what you give up for the illusion of more!

 

Frailly – the morally weak resistance to Climate Change and Renewable Energy

Frailly might explain the morally weak and the extraordinary resistance of some to climate change and a useful tool in fighting it – renewable energy. You might notice a Minister will flounder and adding insult to injury make confounding and confusing statements, ad hoc, and as the selective audience wants to hear. Authors that have had entrenched positions in the past are now desperate to distant themselves from any association with the evidence they previously exposed. You want some examples?

Adding insult to injury: Federal Environment Minister Greg Hunt is on record as not denying cabinet rolled him on climate change. He has since approved the Carmichael Mine in the Galilee Basin in Queensland. What is confusing is that the mine owners may end up with stranded assets, as the world appears to be turning its back on coal for either environmental or economic reasons. How could that happen, aren’t the Indian owners on top of the game? The answer may be they diversify and spread the risks. It may be they are looking at the risks seriously too, and their significant investment in Australia is under Climate Change risk that cannot be ignored. In particular their investment in and the serious threat to Agriculture. Indian Conglomerate, Olam is reported: http://www.abc.net.au/news/2014-08-10/agricultural-giant-says-climate-change-absolutely-real/5659058 . Olam International chief executive Sunny Verghese has told Landline that agricultural producers and processors need to take action now.

“It is absolutely a reality that climate change is going to significantly impact agriculture,” he said.

“It impacts it both from the nexus it has with water, and the nexus it has with micro-climate as well, so it is probably the most important driver to future agricultural production, productivity and therefore price.”

Mr Vergese was on the Gold Coast this week to address the 2014 Australian Cotton Conference.

His Singapore-based company has operations in 65 countries, and is the world’s biggest trader in cashews, and the second biggest trader in coffee and cotton.

Olam International has had a presence in Australian since 2007; it owns Queensland cotton, manages 12,000 hectares of almond orchards in Victoria and has investments in the grain, wool and pulse industries.

“Mr Verghese said one of Olam’s initiatives to tackle the impacts of climate change was to reduce water consumption.

We have a target that in our tier one manufacturing and processing facilities we will reduce water usage per tonne of product that we supply by 10 per cent by 2015, and in our farms by 10 per cent by 2020,” he said.

“Similarly we can track the carbon dioxide emission that we generate across all our commodities in each country.

Again we have put some hard targets of how we are going to reduce that carbon emission footprint for every tonne that we supply by 2015 and 2020.

My view is that there is no point if I say I’ve generated half-a-billion after tax earnings, but I’ve depleted $200 million of natural capital from the environment.

Because then I’ve got to question myself, what is the point of all this overwhelming effort if at the end of the day you’ve really depleted the natural capital and left a huge bill to pay for future generations?”

Co2Land org is also aware of Indian companies in Iron Ore and other minerals in Australia and you might conclude they are balancing their portfolio as opposed to placing all the eggs in one basket. But are they also positioning themselves to expect trade-offs from the government? You might say – but hang on the government says no assistance will be given to industry. Then again we know the federal government in particular likes to offer diesel credits and subsidies if they contribute to mining! Those subsidies are significant – like $b’s.

Then there is NSW Planning Minister Prue Goward saying she supports sensible renewable energy, then says she resists approvals of new renewable projects! Also representing the Southern tablelands area of Goulburn district is the Federal MP Angus Taylor. He is on record as saying sun and wind energy should not be increased in the southern tablelands. Which ironically is very well suited in terms of sunshine and wind and infrastructure availability. Then it is reported Angus, when speaking on 2WEB – Bourke – and in the Australian Financial Review, recently said that Solar Energy is an important part of the energy mix in regional Australia. He even called for changes to the regulation of electricity distribution network charges. He essentially followed the Grattan Institutes recent report: “The key here is to look for low cost ways to move towards clean energy…Increasingly we are seeing that solar is likely to be the renewable energy to win the race”. Then comes the contentious bit for the network companies: The advantage of rooftop solar is that it doesn’t need the distribution network, which is …very expensive”. Go figure we say!

Then we have Rod Stokes The NSW Environment Minister advocating we will have a demonstration town in NSW that is to be disconnected from the network grid in 2014. It all sounds back to the future does it not? A time back when many towns were not grid supplied in the past, and local government actually were responsible for power generation too. The issue in those days was, and is now the efficiencies needed for payback. CO2Land org recently looked at a Monaro region town that wanted to go fully solar. Think 30 years paybacks. Why? 105 households and backup infrastructure needed for reliable supply. Maybe just a little premature on that proposal as we are sure technology will advance to better suit but sometime later we think.

What all this leads to is sensitivity and concerns. On the one hand you need to keep your customers happy. On the other networks need to either change how they do business or just keep on encouraging the regulator to actively discourage renewable energy. So what are networks going to do? Even that gets confusing – it seems customers don’t want change either, and some say for example: I left the city for a lifestyle change and I buy from the local businesses and I create jobs because of it. Then some company builds a wind farm nearby, and a solar farm is proposed too. I wont have that! Note the ’we’ is missing here, and the local businesses say that the wind and/or solar farm is good for business and workers come in and buy and people come to see the area’s attractions! Even move perverse is many of the objectors tend to be those that were not offered revenue from the project. Even neighbour against neighbour can occur because one allows a tower or panel on their land for a rent and the other missed out. Get it, like not in my backyard, but if you pay me it is OK? We find it interesting that the tree change types are happy that conventional power station plumes can destroy our fertile areas like the Hunter Valley and they don’t care!

Ok, so the answer is go bush and the Southern Tablelands local MP (Angus Taylor) says Solar is fine – in the bush and networks are expensive – sounds a bit of an oxymoron does it not?

Maybe the whole game is to discourage and to make it too hard, or is it just a ruse to confuse? If you want to be confused even further try reading the Business Spectator article: 7 August 2014, it was said “Finally, and perhaps more important than all the other arguments, future private owners of the networks in NSW and Queensland are likely to welcome asset write-downs, if it’s done before they put their money on the table.” The author does seem to suggest it is a plausible argument to suggest brown paper bags work best to influence an outcome? But, if so – won’t there be an inquiry?

Let us read through that story a little more: Why the power networks are wrong about writedowns,     BRUCE MOUNTAIN , 7 Aug 2014. If we select the key phrases:

“The Energy Networks Association has recently released some modelling that suggests consumers will be worse off if stranded network assets are written off. The gist of its argument is that such revaluations are perceived negatively by investors, who then demand a higher rate of return on their investment to compensate them for the risk.

The ENA’s argument seems fallible in a number of respects. Firstly, we need to question its assumption that networks investors have not already been compensated to bear asset-stranding risk. The regulatory calculation of the return on assets is based on an external ‘benchmark’. It is not based on the firms’ actual cost of equity and debt.

Prospective private investors, governments, consumer advocates, retailers (and the Energy Networks Association) might usefully focus on these questions. Better to get with the times than to try to hold back the tide. “

What concerns Co2land org about all this is the need to concentrate on networks as ’the investment problem’? We can understand that others might not be so convinced that we should merely think of networks being a commodity rather than a service. Even if you think of them as commodities – is it right to say – like the energy market can be fixed of its shortcomings, and then quote UK examples of why the problems will continue? Terribly confusing is it not old chap!

CO2Land org and our partners are prepared to accept that it is not solely the networks at fault. We feel certain parallels could be drawn but not one of the solutions can be directed to one side, we need new ideas to be brought forward and resist drawing parallels that do not exist. 

There may be an argument that it is necessary for chaos to exist in regulation land, so things can sort themselves out. But, that wont happen – too easy, Human nature directs it needs to be complicated!

All that put aside: what the networks need is a model to go forward with, so inevitably some write-downs and disquiet will happen. It will not be the end of networks providing they have strategies to move forward in partnership with renewables. Why else would the politicians being expressing they might change their mind, it cannot be all tactics to disrupt and detract progress – could it! 

 

 

Can you opt out of a contract – energy companies can in AU

Recent articles said energy retailers have all the power when it comes to contracts. Our friend the chook farmer tackled that notion and won. But the really disappointing thing was the retailer was reluctant to apologise, instead they said ‘as a Customer Service gesture xxxxxx have reversed…”. That said another retailer that was caught up in to saga was very generous in the way they handled the matter. You might feel as we do – the later can be recommended to our friends for future Business! The energy user also deserves special praise for the courage to stand up to what we saw as bullying.

Published on 31 July 2014 by the Canberra Times http://www.canberratimes.com.au/business/all-power-to-the-energy-companies-when-it-comes-to-adjusting-prices-20140731-zyvp9.html , it was a story that expressly said Electricity companies appear to be able to opt out of contracts. This does fly in the face of what a student might remember as Contract Law 101 – reasonable man, offer acceptance that sort of thing. Well it does seem the energy contract also known as an Energy Supply Agreement (ESA) or Retail Supply Agreement (RSA) is a one way contract – user can be used sort of thing. If the user has limited rights how did chook farmer win when it was stacked against him. It actually had nothing to do with the interference of National Electricity Law (NSW), pressure from the ombudsman or common sense. It was the greed of the energy company itself in that they cooked up a scheme and sent out a letter a couple of years ago saying if you do not reply you will be deemed on contract for 3 years – You better check your agreements chappies, you might be contracted and don’t know it!

The answer to the ‘win’ was the energy company relied on a deemed contract. But, they failed to ensure they had an executed original contract in place. The timeline was in 2012 they said by their conduct they had a contract duly executed from 2009. In 2014 they decided they no longer wanted the customer and allowed the customer to transfer to another retailer. Then retrospectively they wanted a $10k plus penalty payment for an early exit. Where the sneaky weasel went wrong was the energy company did not have an executed 2009 ESA to prove a contract existed in the first place.

Well it seems in Australia and NSW in particular an energy company can write into the contract a clause that overrides contract law. That is a price can be varied at any time the supplier wishes. The example above also highlights another problem – the retailer ignored the pleas for justifying the attempted charges. That is correct they refused to be transparent, and the claimed they had no need to show how they arrived at the numbers. Previously co2land org has written of Rule 72. It does seem the same principle is used in this instance.

We mentioned Ombudsman also, do you know they are member funded by the people you might complain about? This means they do not operate to instigate, they mediate within rules. If the rules are stacked against you, well – use your imagination! Better still read the direct quotes on the industry behaviours from the Canberra Times article: “The industry’s regulator has decided that your power supplier can raise charges whenever it decides, rejecting a plan from a consumer group to force utilities to comply with the terms of a contract.

Electricity suppliers have been accused of seeking to entice new customers by offering attractive deals on two- or even three-year contracts – except the small print gives the supplier an opt-out, the ability to raise prices when it wants.

As a result, a consumer who has shopped around to find a plan that suits them can find the prices have changed even before they receive their first bill.

This prompted the Consumer Action Law Centre, through its arm the Consumer Utilities Advocacy Centre, to seek to have power companies blocked from being able to unilaterally change fees and charges. It went to the industry’s regulator, the Australian Energy Market Commission, asking it to act.

But the regulator decided not to, preferring instead to ask retailers to be upfront about any changes.”

Co2land org would have hoped for increased certainty around the market. The advocate tones of what is needed clearly show the Australian situation needs to change. It seem the strong are protected and the less well prepared to be exploited. How does this fair with the rest of the world? Again quoting the Canberra Times: ”Retailers can manage those risks better than households….They know the market. Instead, all of the risk lies with the household.” The Consumer Action Law Centre spokesperson then said: “The regulator’s decision is at odds with that of regulators in other countries, such as the UK regulator Ofgem, which last year blocked power retailers from raising prices on fixed-term contracts, which are disadvantageous to the customer. Similarly, power companies are prevented from levying termination charges when their fixed-term contracts expire.”

Our final word: If we want so much to copy others good legislation, this UK example is a good place to start and make a difference too!

 

Waltz with your innovation – 1,2,3 step

What really goes wrong with the next step from innovation is a common question. The most probable answer is scientific reputation. Followed by you. Followed by your assistance choice. Think this: You have a really good solution for a problem you have identified. You put your energies into making it possible. So you go from inventor to innovation. Chances are it goes wrong at the next point – what is known as the valley of death in the leap to commercialisation. You spend vast amounts of money in relative terms and still no significant progress. There is plenty of talk and countless possibilities. However, there is very little progress.

Chances are you challenged conventional wisdom – first mistake. Someone else has something to lose. Chances are you have improved a widget – next mistake. It was someone else’s cash cow. Chances are you did not realise you have set a new standard, or at least the potential to change is recognised. This means you are causal to change. Have any of you ever thought that what you cause to change might not like to change?

Once you have spawned you idea and it is in front of your eyes, and you dream of the introduction to the market. We all think for the good mankind here it is, wonderful!

To have your idea move to being accredited it must be measured in some way. By what measure soon becomes a dilemma. Does it produce an electric current, does it produce noise, and does it produce gases and so on? This is where scientific reputation becomes important. Chances are you need some sort of national accreditation body give it a number of some sort. The most common delay to the introduction of your idea is proving it is a benefit. A couple of examples are the CSIRO writes of the promise of a particular technology, financiers have promised funds, buyers are prepared to place orders. But, you only now go to the EPA or some enforcement equivalent body asking for the merits to be rewarded with an exemption or sanction of some sort. Your mistake – market acceptance is not enforcement acceptance. Now considerable effort is needed to save your initiative. You may even need to change your design because of scientific reputation.

Will you accept the notion you must change? In an article, http://www.entrepreneur.com/article/235608 , JULY 15, 2014, Steve Tobak wrote: “As a veteran of Silicon Valley, I’ve had the distinct pleasure of working with more than my fair share of talented and innovative entrepreneurs. Sadly, some of their behavior was just dysfunctional enough to royally screw things up for themselves and their companies…… That’s not meant to be as irreverent as it sounds. I have always felt empathy for founders and their stakeholders. After all, it’s not as if I were some paragon of virtuous behavior when I was an executive, either. Nobody’s perfect……… Nevertheless, you can’t fix a problem until you face the truth. So whenever I have an opportunity to help a promising startup that can’t find its way or a mature company in need of a turnaround, it is difficult to watch them fail simply because those in charge aren’t willing to deal with their limitations…….. Any decent psychiatrist will tell you that on some level smart people do understand what’s really going on. They do have common sense. They hear what others are telling them. They know what they’re doing. So when they suppress it, bury it in their subconscious, hear what they want to hear – call it what you want — that, my friends, is a choice……….    I bet I know what you’re thinking. There are lots of reasons why startups fail. Yes, there are. I’m sure I’ve seen them all. But if you dig down a bit, the root cause of most of them is that their leaders choose not to see what’s staring them right in the face. Think about it. You find a reason and I’ll show you an entrepreneur in denial………. Lots of companies run out of cash. But while some can’t raise capital, you would not believe how many can and simply don’t. Oftentimes, their founders aren’t willing to give up a piece of the pie. They try to bootstrap a promising venture and end up starving it to death. Or they have too high a burn rate, aren’t willing to invest the time it takes to raise a round of funding, wait too long and run out of time……… It’s hard to imagine how many beneficial ideas, inventions and innovations never see the light of day because they offer solutions that don’t actually solve any real problems. Or they’ve come up with concepts, not products……… Lots of entrepreneurs are not in it for the long haul or for the right reasons; they think they can make a quick million or feed their egos. Some don’t think they need a unique value proposition or competitive differentiation. Others have holes in their strategy so big it would take a miracle to fill them.”

Co2Land org say there is another problem we should also mention. Be very careful with who you ‘are allocated’ to help with commercialisation – their motive may not match your own expectations. Example: You see a long-term relationship with your enterprise; they may see the need for you to make a company exit. Who is right – the right of the company or your association right!

So it is a three step, a waltz no doubt: reputation, you and your partnership choice.

An honest opinion – Why Electricity Prices are Rising

It started, if one cannot express an honest opinion to one another – than we have no freedom. So why was a recent writer not particularly pleased when we said: “The ‘why’ needs a follow up and maybe a sharper focus on the Institute of Public Affairs motivations”? By this was meant they are an institution that makes a claim as the ‘The Voice of Freedom – Freedom and Optimism” – yet they seem so negative to progress and innovation. So we feel it is fair to say what motivates needs a sharper focus.

What was it all about? It started with the comment: “Good article on the ‘what’ – Elegant, eloquent, easy to read. The ‘why’ needs a follow-up and maybe a sharper focus on the Institute of Public Affairs motivations? That regulators tend to anticipate growth and expenditure from information supplied by the networks. Then there is the ‘how’. How did this happen, or at least more detail on the how! For instance: Is falling demand from energy efficiency, or the commercial sector in decline and/or manufacturing slowdowns/showdowns. Will it happen anyway because to be more effective you need to be more efficient? “ The article being commented on was “Why Electricity Prices are Rising, 27 June 2014” – posted by Turlough Guerin. In the preamble he said “When I worked in the telecommunications sector someone told me that you don’t need a PhD to understand how pricing works – but it sure helps. Perhaps the same holds for electricity. However there is no doubt that power prices are rising across Australia. This is clear not only from federal government statistics, but you need look no further than your power bill with the average household now paying close to $1000 each year.”

But, CO2Land org finds a major issue with the use of past data in determining the facts. – For instance the variable are changing in their focus, the model of the business are changing or at least being forced to change. More importantly the changes are being driven by the need to more efficient. All brought about the world wanting us to be measured on comparative advantage of our products. It you do not believe us: Why is carbon a focus elsewhere in the world? Why is it that penalties are being sought against those that do not seriously consider carbon in the world markets? This is not an argument on the setting of the price, it is about the need to be aware that future predictions from past data is dangerous, and you must consider the circumstances are changing.

In the article above, it was good, but only because it was the first installment in what should be a series of facts being presented. For instance we could write about why Victoria sold it assets and that at that time Victoria had an excessive redundant infrastructure available, and this gave rise to ‘a good buy’ to those that buy the asset with a cash cow potential. Bring that forward to today, and those that own the Victorian Assets have a conundrum; the private owners need to find more money to improve the services in a tight market. Now if we move to NSW, today, we see a very different problem; they are trying to sell a run down network that might not be viable to buy. Queensland has another set of problems and the long runs between population centres and the concentration of the southeast corner make dissimilar circumstances that make it difficult to say a common variable affects the business.

All that said what are the variables? We propose a new model the give weight to:

  • What is the costs to maintain the existing the Poles and Wires (Transmission and Distribution networks)
  • What is the costs of stink of politics – Science v’s Fiction argument
  • The reality of a carbon market and its global significance to our local markets
  • The existing infrastructure – new and aging generation coefficients
  • The existing infrastructure – transmission and distribution future needs
  • The infrastructure – gas system – this is a very complex issue as it is sensitive not just to the environment as it is to world politics. In effect we have very little control of what is happening in that industry. Why because the deals done elsewhere are linking the gas price to movements on peak oil price predictions.
  • The potential of the suite of alternative energy sources. This means the current infrastructure is very likely redundant. The really sensitive fact is that the models of distribution will change because of it.
  • The Electricity Demand. Be it new or additional generation, the transmission and distribution constraints, the regulator findings or simply consumer behaviour (despite climate change); the biggest problem is the supply demand balancing equation. The supply demand balancing equation is persistent is being 20% of the time is setting 80% of the costs. It then follows that of that 20 % of time the larger costs are 80% likely to occur 5% of the time. With this sort of issue it become apparent consumer behaviour set the theme. We should also put out there to you business slowdowns affect consumer behaviour.

That last comment leads us to the question: Is electricity a commodity or a service? It is not a new question, and political ideology will elicit different answers. Our point is no mater what you think the provision of electricity does determine if we are third world or not. In the pure sense price is simply the cost of providing? Ironically, when you crunch the numbers of our Treasury recommendations our ‘budget emergency’ does seem to settle on 17% increases in everything as good. Justifying the need is far more complex.

So while we liked the quoted story, it is only the first part of a big story. If you are looking for a really good read of how it all happened in Australia, read: Booth Robert R (2000) Warring Tribes: the story of power development in Australia, West Perth WA: Bardak Group. Robert is no longer with us, but bet you he would have plenty to say – had he been here.

 

 

 

 

The wax lyrical, but fact – bad behaviours in the Energy Industry

The Checkout in its wax lyrical style ran a story on Energy contracts including exit fees.  Had we not seen it we may have felt we were alone in our concern for the behaviours in the industry. Obviously, this media version was directed for the public appetite, but the story is based on fact! Consumer laws are very weak and the National Electricity Laws strongly favour the Energy Companies.

The Checkout story was run on the ABC (Australian) on 26 June 2014, 8PM. It is also interesting that it did not highlight a single company practicing or should we say taking advantage of ‘trust me’ then doing the screw you turn on you the user – it highlighted a common practice among many retailers in the industry. We appreciate residential customers have some protections, but that in NSW is set to change or should we say leave many people further exposed to the behaviours. Whilst the market will be fully deregulate, it would seem the Laws and rules of the industry will not be amended soon.

Those with legal training, or savvy enough will avoid the pitfalls and probity issues of the simple thing and essential commodity – energy needs. However, in a conversation with the other side (a energy retailer) recently they admitted that they too found it difficult to follow the rules. Why, consider this: You want to change the wording on your contract – a simple word change on a clause. You have a dispute and that word is found to ‘not flow’ with the rest of the contract. Therefore the wording of the National Electricity Law is to be relied on. It overrides what is written in your contract. Ok that is the scary part. The practical is that mum and dad’s are told ‘we care, we will look after you, you will save, that’s good is it not ‘– you say yes, and Call Centre then declares you are now under contract. So simple – but, you don’t save. That issue is covered off so well in The Checkout Story.

Business customers have a little more exposure in that depending on their size, according to the market, as opposed to Corporations Law, they will need to be careful of the Energy Service Agreement (ESA), the Contract, they have presented to them. For instance, most have terms and conditions in the standard form that will penalize for exceeding consumption caps. The penalty can result in the price offered being withdrawn and you being placed on a default tariff that can be hundreds of percent higher than what you negotiated. Another trap is that you need to be mindful that the network charges are not negotiated in most standard form agreements. You might say, the rules say a network tariff review must be conducted – but beware it is not binding on the retailer that they be negotiated unless stipulated on the contract.

That last paragraph also highlights what you need to know. Your consumption caps are not binding on the network company. The ESA is a contract for supply from the retailer – it protects the retailers from its risk in the market. The transport and distribution networks will rely on what is the constraints of the system and set limits as it sees affects its asset. An example: Your retailer ESA says 20% variation allowed. Your network company – generally a default and deemed contract according to law, say we will impose a demand tariff on you when you exceed 160MWh per annum load. It may be good it may be bad depending on your circumstance. But, what is does not do is connect your circumstance to your ESA. You should also be aware the majority of business is distribution connected and prices set for the transport are determined by an approved formula. If you are large enough to be classified for a transmission connection you can have sway in contracting and negotiating what you take from the system. For the very large customer you also need a team of lawyers to complete the deal.

Now, all above is about import power, what if you want to export power – small scale generation – well what was called a power purchase arrangement (PPA) is now a Energy Supply Agreement (ESA) as described by the Australian Energy Regulator (AER). Before we go any further did you notice the near same term and the same acronym meaning something similar but very different in what it does. To use the words of our good friends Solar Professionals: “Can I start by saying that the creation of an ESA template is both very expensive and lengthy in duration. Multiple legal aspects have to be considered when drafting these contracts, from property law, banking institution requirements, GST impacts, numerous funding and system requirements not the mention standard consumer law principals and all the requirements from the AER.” We include this to let you know what is needed is complex and has a very detailed need.

So what started off as a wax lyrical presentation, now shaped the focus on what (watt) can really hurt you – electricity! We guess once the carbon tax is gone, another way to tax will follow! Lets us be a little devil – they might impose a transport tax on delivering you energy? Well it makes sense – they make the electrons cheaper but now the transport cost is fairer?

On that matter of the Carbon Price our politicians are saying they will force the ‘energy companies to pass on the savings’. Did you know the majority of your Carbon Price is blended into your network charges? It is not transparent. The energy retailers cannot unbundle what the network companies levy you. Maybe the politicians need an education too! Yeah, that has appeal – Politicians ESA 101. Or more correctly they might prefer: The tax is dead, long live the tax!

 

Penalties for Solar – with and without

A chook farmer said I love my chooks, I tried to be responsible and I get kicked in the head. It is making us sick and the business will suffer. The sin – the family business wanted to install Solar Arrays 99kW of – trying to make it better all round.

The Background:

The chook farm (Poultry) is in the Barnaby Joyce/Kevin Anderson territory and the owners were trying to put to rest concerns over the industries practices. That is they wanted to build a better environment for their chooks. The attraction of going for Solar PV – because it made good sense and the flexibility of the installation would give the chooks the opportunity to live more of their existence in more comfortable digs. These solar panels allowed a bit of innovation in the design of the system and they could use the panels to shade the chooks. The extensions to the sheds would provide safe free space in a commercial environment.

You know what – he had a bad idea. The energy retailer said no way you cannot change your import profile. The energy retailers export part of the group – they would be the buyer of the export energy said – sorry cannot help you. The other end of the scale, being the solar supplier business said we couldn’t guarantee the small-scale renewable certificate price in the contract either. It follows that is an estimate only and the SRES is under review. Interestingly, at this point the discussion gets down to, is the government policy or the governments position that influences the price. After all it is the government policy that sets the price – and they have a position the market is influenced by the policy! We suspect they have not thought that through themselves either.

Here we had a bank-approved investment of greater than $300,000 to create a better place for the chooks and the environment hanging by a thread. The energy retail company that sold itself as having a customer charter to help you and the environment broke the thread.

Solar out, done, dusted – the chook farmer still had to run a business. Should we say business as usual – old sheds, no runs, no nirvana, just the same situation dollars are king.

They still need electricity – the most crucial need is the tunnel ventilation systems – half an hour without – 7000 chooks with heat exhaustion – gone.

After the energy retailer making it clear they are not interested, the cavalry comes from another retailer, they send out notices 1000CR, and the old retailer says we have no objections (initial resistance then they notify they have no objections to the new retailer) and the changeover happens – the difference in price is also outstanding and the chook farmer can now buy new equipment and build new facilities with the savings in the energy price – yes, they got a price so good – the difference could be put into improvements and make it better for the much loved chooks. It all looked like a ‘win win’ situation or should we say ‘cluck cluck’ – even a t-shirt is printed and proudly worn saying ‘cluck cluck’.

All goes well for a couple of months – then the letter. The old retailer demands $10,182.92. Those charges being listed as “adjustment Early Termination Fee – $9,257.20 and the remainder regulated fees and other government charges. They said the farmer broke their contract and fees are payable.

Extremely bazaar behavior is that the old retailer ignored requests for transparency of the charges and to explain how is was reasonable in the demand – in fact they have also ignored that the new retailer offered to give back the customer without penalty from them – you can assume the old retailer only wants the money. This is the same retailer who refused to entertain the new system without penalties according to their terms of contract. The term is generally called consumption caps or similar.

Maybe the old retailer sees it all as a lucky dip – a chance to double dip. As Co2Land Org posted in the story on selling short, 23 June 2014, they do not want the customer to consume as they have already resold the capacity and the penalty is ‘money for jam’ so to speak. Where it came to the Solar PV, maybe it was a long selling issue and they are exposed to having too much liability in the market and government inconsistency of their position or policy is causing some angst at the commercial level. However, it still seems very plausible they intend to double dip no matter what.

Now our chook farmer has a delicate situation – kill the purpose of innovation – blame the world – and give in. No they are not giving in – they really care – they love chooks – it is about giving the chooks a good life for ours too they say. But, does anyone else care! We bet a lot of farmers feel exactly the same!

Listed now are some of the problems they have to put up with in trying to communicate with the old retailer:

  • Sometimes they spell my name correctly, sometimes not and it may seem a small communication matter, but it is a communication issue.
  • They use common terms to mean other things. Even lawyers get confused with what is meant. We have gone from “No further action” to “discuss payment” being the same thing.
  • They have ignored our request to show the charges are reasonable.
  • Without our knowledge we were ‘deemed to be on contract called an Energy Service Agreement (ESA) which is what we are penalized for.
  • We will now very likely have notes on our credit reference that is adverse or at least noted.
  • Our new retailer wrote saying the old retailer lifted objections to the transfer.
  • The old retailer gamed by remaining silent to them intending to penalise while the changeover happened, and the dust to settle.
  • They remained silent on their plan, and they issued no written notice or objection.
  • It took so long to anyone to listen – then we get a sort of answer. Finally, an apology – I (singular) was on leave but the hanging out will continue sort of thing.
  • If you ring them twice in the space of 10 minutes you will get different answers to our questions.
  • They are fast to answer the phone, but very slow or hinder progress on complaints.

We have checked out the options and went to the government website ‘energy made easy’, and it suggests you lay your complaint with the Energy and Water Ombudsman NSW (EWON).

Our want:

Go away old retailer, what has come back is bewildering and we believe wrong.