‘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.

Trust, Context and Success

Trust, context and success. If you consider Australia has, during July 2014, dumped the Carbon Price (renamed to Carbon Tax in the repeal legislation). Then read the Republicans of America do seem intent to introduce a Carbon Tax, you must ask what is the context and what is the success factor they seek for it to appeal and be persuasive for it to be trusted? The textbook stuff will read: In the main economists agrees a tax is the way to put downward pressure on emissions. It follows the Republican faithful don’t like quantitative emissions controls, caps on emissions, or subsidies. However, they do like market forces to organise an economic response. The selling point is that emission can be cut where the market finds it is easier and cheaper to do so. So, can we say they trust a tax to be more persuasive?

Also, how many of you are doubting that your electricity price will reduce in a meaningful way because of the Carbon Tax repeal? Do you not trust? A company known to us recently asked (a wildcard throw-in) during a energy contract dispute to say: Will XXXXXX retailer be discounting their claim for future losses – because the carbon price should not now be factored in. If asked why should they discount – you say because they have claimed future loss as part of the reason for the claim.  Then ask will they be required to show where this is calculated? Who will police the repeal? Trust us the umpire says!

Consider this, you expect the umpire is there to help you – the policy says if you have a problem, call. You phone to clarify where the discussion might be going. The umpire says; you have to consider the impact of what you are saying. Your head goes into explosive mode – you ask yourself where is the natural justice in being implied the victim is a trouble maker, where is the fairness in having your accounts being set in limbo for so long. Is it right for them to continue to affect your business in terms of personal stress and reputation? Then comes a response you don’t expect – the perpetrator asks for more time to influence the umpire. This example may be hypothetical but we are sure you all have had such moments!

To trust – is it context, sincerity or actions that determine that we do? We notice that some will dress especially to impress – at the wrong time, some will gaff at the wrong time, some will talk to an audience about a matter and not know the audience is well briefed on why your view is obsolete. Does it matter one little bit? A little bit of course – the like-minded will be impressed, and the faithful is impressed. However, no one outside the group is impressed and the feedback from outside that group is awful.

We prefer to define what we are talking about before sprucing the benefits of a position. You might notice we said – benefits. This is not a cost benefits discussion or evaluation it is just looking at the positions one might take.

Start with: Trust (the noun), a firm belief in someone or something, acceptance of the truth of a statement without evidence or investigation, the state of being responsible for someone or something.

Therefore if you do trust not seriously, you doubt that you can trust others, that you cannot name what state of trust you are in, then sadly you may have programmed yourself as an advantage taker. Note the word advantage, which is very different to opportunity in this context. If you only seek advantage it is more difficult to find success. However, if you take advantage through an opportunity you may be successful.

“Success is where preparation and opportunity meet.” Bobby Unser, racecar driver and Indianapolis 500 winner. Unser knew all about opportunity and using it to his advantage. But if he wasn’t prepared when the opportunity presented itself, he could lose the race. Unser is one of only ten drivers ever to win the Indy 500 more than three times, and was the first driver ever clocked at more than 190 miles per hour (306kph) on the circuit.

We are now noticing that preparation is equally, if not more, important than opportunity. However, you need to be prepared for opportunity. You prepare through education, self-improvement practices to be ready willing and able to respond to opportunity.

Trust, context and success come from opportunities. Opportunities come from inspiration and motivation. Simply identify where your trust should lay, the context of the framework setting, educate yourself in how to prepare and be successful – easy is it not? If only I did not doubt myself!

 

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!

 

Want less intrusive government and good policy – US influencers

Bloomberg reports the US republicans can warm to a carbon tax. Why? Because it is a solution that does not require subsidies to work and it allows the market forces to set the economic response. The hook – all the money is used to offset income tax.

Now back home, despite previously advocating a Carbon Tax as late as 2009, the conservative Australian Government is set about to dismantle the carbon price (also referred to as the carbon tax) and preferring to introduce other taxes/charges/fees that will be greater than the impost of the Carbon Tax. Considerable opposition to the plan is gathering pace, and it is based on the uncertainty of the alternative measures.

So how do the Americans intend to sell the Carbon Tax and what is the appeal that is persuasive for the Republicans? For a start in the main economists agrees a tax is the way to put downward pressure on emissions. The Republicans don’t like quantitative emissions controls, caps on emissions, or subsidies. However, they do like market forces to organise an economic response. The selling point is that emission can be cut where the market finds it is easier and cheaper to do so.

Now we hear the argument: ‘Some’ Republicans oppose the notion that Climate Change even exits! Well to use the President of the Australian Solar Council words spoken on 5 June 2014, when politicians resist they will come around to change their thinking easy enough. You could interpret that as – I oppose to recognise because change present problems that require actions. You could also say in ‘yes minister’ style: One will be courageous when it becomes unavoidable. You could say if you reduce the risk, and it is to reduce the likely hood of a voter backlash it is a good thing.

To follow on with the tax argument, we quote: “Instead of listing all the fine things a carbon tax could buy — some tax cuts here, a bit of budget-deficit reduction there, and plenty left over for additional spending on infrastructure and other good things — advocates of such a tax should simply offer to give back all the revenue in the form of tax cuts elsewhere.

It’s a worthwhile trade because a tax is by far the best way to reduce carbon emissions, which again is the whole point of this exercise. Consider a modest tax of $16 a ton of carbon dioxide, rising at 4 percent a year above inflation. It would reduce power-sector emissions by more than the EPA proposals for the energy sector would, and curb emissions across the rest of the economy as well.

A $16 a ton tax would also add about 16 cents to the price of a gallon of gasoline and raise household energy costs by 5 percent to 20 percent, depending on the source. Such costs — to “families and businesses,” of course, because what politician in his right mind wants to impose a new tax on families and businesses? — are most often cited by opponents of the tax.

The answer is twofold. Yes, families and businesses would be paying a new tax. But no, families and businesses would not be paying more tax. The new carbon tax would raise about $1 trillion over 10 years and almost $3 trillion over 20 — a handy sum. That would be enough to send every U.S. resident a check for about $300 in the first year (with bigger checks to follow) or $1,200 for a family of four. It would be more than enough to cut the corporate tax rate to 28 percent from 35 percent, for instance, or take a bite out of payroll taxes, or some of both.

This would inevitably lead to an argument over which taxes to cut. At which point, admittedly, the debate could bog down all over again. But at least it would be framed by a shared assumption: that a carbon tax is good policy. It gets liberals a more effective climate policy, and Republicans a less intrusive government.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.”

Now back in Australia, eh what was the problem? I guess we have an issue with setting our priorities – we prefer to impress bar flies!

A ‘true’ reflection of our community thinking

Alan Kohle – finance presenter on ABC News, said: Abolishing the carbon tax will cost real money – $13.7 billion over four years – because unlike the minerals resource rent tax (MRRT), it would have actually worked. He postulated that the repeal of the MRRT and its associated spending measures produces a net GAIN to the budget over four years of $9.5 billion … and this was supposed to be a tax. This makes interesting reading, the MRRT is a tax that is a net gain to the economy and the repeal of Carbon Pricing is a cost. Now we are starting to understand that the Senate is on about – is expected to vote for costs at a time when someone or something declared ‘budget emergency’.

Jokingly, a near neighbour suggested the best way to tackle the deficient is to remove the cabinet from our executive. It makes some sort of sense if you consider the spin doctors make up the words, the power brokers approve and the Ministers mouth the words with Shakespearean gusto, and possibly cannot answer simple questions outside the script, often saying when asked to do so – I am not the author Ill get the person that wrote it to answer?  It would reduce our deficit would it not?

But far more damaging is what our trading neighbours think…Great conversation with a phone call coming in from …….. yesterday afternoon…have confirmed our first ……… be shipped to us end of January, plus additional projects (really interesting ones) over there. They also provided some friendly political advice that our esteemed PM was doing considerable harm in Asia and needed a bit of “polishing”…… brought gales of laughter and the comment that this is why he was not being taken too seriously at the moment because it was not believed he was a true reflection of our community feeling.

Are our Asian neighbors right? What is so sad about this story is that originally, the project mention above was mooted to be manufactured in Australia – government programs were solicited and proved difficult. It also seems incredulous that the program administrators expect the bankable is sufficient because they approve or disapprove through a program. If you go to the bank with that view they are likely to say government is irrelevant – It is starting to sound like a prophesy, is it not!

Then someone said something ridiculous – I thought they were ‘nomads’ – but they get angry when I TALK TO THEM – The joke is in ‘no mads’ OK!