Yield expectation – NSW Poles and Wires – for sale.

Ok, the NSW poles and wires lease sale is now into the detail phase. Well actually that detail is reported to be already decided. What are not known are what will be said to the public, and that should be not too far away from being known. In fact the Premier has not wasted any time in encouraging ‘mums and dads’ investors to take out shares. As with all investments the price must be attractive to encourage you to buy. But there is another side of the coin. The institutional buyer must know the price to the user is higher enough to guarantee a return before they buy into the infrastructure. How is that done?

In the case of the energy utilities: It is the federal body, the Australian Energy Regulator (AER). It happens that the AER, and very shortly after the NSW Election where the mandate has been won to sell off the 99 year lease of the ‘Poles and Wires’ to highest bidder, will be setting the price for the future with an interim decision by April 2015 or very near to that date. That decision would determine network prices for the next five years.

So if you think about that you can see that the NSW Premier is technically right – no price movements will be because of the ‘sale’. You might also see why the oversea of the ‘sale’, the former ACCC chair, can say prices will not be greater than the regulator (AER as it turns out) determines. You could find it argued you will pay more, but it is not the sale process that increased the prices. That may be a slight of hand from the politics, but it is still a fact.

Then to put a balance on what an investment might be expected to return, we have a story – Is the search for yield becoming unsustainable?

By business reporter Stephen Letts, 30 March 2015. “The rotation out of investing in high-yield dividend companies into ‘growth’-focused enterprises is gaining momentum. The past month has been particularly striking. One of the key engines of the yield story – the utilities sector – has gone into reverse, falling on average 1.5 per cent this month after a solid 12 months of outperformance.

At the same time, investors exiting the yield play are piling into information technology and industrial stocks hoping for more exciting returns.”

Co2land org now considers: Is the NSW Government too late in getting the float of the poles and wires to market. We use the story above again to quote: “Manufactured yield is not sustainable.” Also quoted is: “Goldman Sachs says the low risk approach is to avoid companies that have been “manufacturing yield” by relying on debt, assets sales and underinvestment in their businesses. Interestingly many of the companies with the largest “cash shortfalls” are the utilities that have been at the forefront for the search for yield. Leading the pack is the power utility and network operator, AusNet Services. Goldman Sachs has found AusNet Services experienced at a $2.2 billion cash shortfall over the past five years, which represents about 62 per cent of its average market capitalisation over the period.

Duet and APA – who are in the same line of business – have shortfalls of $1.1 billion and $650 million respectively.”

Therefore we see an ominous gathering of indicators that suggest the NSW float might not be the good it is promoted as being.

We think the ‘real’ issue will be the pressure to reduce the price by the user. The providers for a ‘demand response’ should also be persuasive to avoid prices rising by virtue they can determine the demand needs for energy. Why the later because, they have the power to defer capital investment needs assuming the network growth need dictate investment in the failings of the system.

The ‘elephant in the room’ is there too! It is of course the remodeling of the energy networks business model and the rise of cheaper embedded energy networks with renewable energy sources.

Tis interesting times!

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clueless, naive and dangerous in its understanding of its responsibility – what is the legacy?

The NSW and Queensland Government have a plan. If they sell off the assets they will be no longer responsible if things go wrong. This does leave a fundamental problem in terms of legacy – A number of problems actually.

Starting with: Will corporate simply view governments as irrelevant in the near future. They already do think that, and as an example when the Queensland Transport Department set traps to catch UBER drivers employed by Google and Goldman Sacks. The corporate told the drivers to continue business as usual and ignore the Department. Google even then disabled the Government ‘s capability to track the drivers. How could they do that – they are quoted nationally as saying the conglomerate has deeper pockets than the government.

Both NSW and Queensland seem to have suitors for the Energy Networks Companies they have on offer. Even the relevant Ministers’ seem confused as to what and how much is for sale.   What the public know is that it is very likely two Asian based corporations will be in the front seat for the assets purchase. Both with deep pockets, and both with a high probability on controlling the total business in both states.

Can we have confidence wise decisions will be made? Maybe time will tell. But in NSW at least a very worrying case indicates the Government is more interesting in avoiding responsibility for its choices.

If you follow this story you may feel as apprehensive as we do: Wind farm at Gullen Range a ‘mess’ as matter heads back to court , January 26, 2015. http://www.canberratimes.com.au/act-news/wind-farm-at-gullen-range-a-mess-as-matter-heads-back-to-court-20150126-12ygnn.html

“”The scene is set for a right royal mess with no one happy. It follows the protestors, the complainants, the Developers, are all challenging the Minister over who is responsible for a litany of ‘mistakes’. s clueless, naive and dangerous in its understanding of national security. Suggesting the department is clueless, naive and dangerous in its understanding of its responsibility. To quote directly from the story: the Department – and therefore Ms Goward – had taken three different positions on the wind farm, which would be difficult to defend.

Firstly, the Department recommended conditional approval of the turbine changes to the PAC. In turn, this body refused the DA but along the way, the Department had recommended that just nine turbines be moved.

“So if it all goes to court, which position will she defend?” Mr Brooks asked.

“The whole thing is a colossal mess.”

Complicating matters is the Department’s oversight role earlier in the development. The company appointed an independent environmental monitor to oversee turbine placement and report to government planners. However, the Landscape Guardians alleged he had a conflict of interest as director of a consultancy firm that worked on the wind farm.

A Department spokesman told the Goulburn Post that this person was employed by a consultant and not by the government.

“[He] was not involved with the design, construction or operation of the project, having worked as a consultant preparing the environmental assessment for the application.

“Appointing [him] as the project’s environmental representative is in line with the project’s approval conditions and the Department’s procedures at the time.

“The Department has since improved requirements further to require wind farm consultants have an even greater level of independence.”

Adding to an “invidious” position, the Department allowed turbine construction to continue for a year after residents alerted it to their “incorrect” placement, Mr Brooks said.

“My [legal] advice is that the Minister will be obliged to defend the [Land and Environment Court] action seriously because her authority is at stake,” he told the Post.

“I hope the court throws it out, but that would throw up the situation where the PAC has rejected it, and we still have a wind farm of 69 turbines that are not in their approved locations. What happens next?”

A Department spokesman said the appeal was not about the merits of the modification, such as whether any turbines should be moved, but the process the PAC followed to make its decision.

“If the appeal is successful, then the modification application will need to be re-determined: at this stage the merits will be considered again,” he said.

“It would be highly unusual for a court to require new evidence from any party regarding an appeal of this nature,” he said.

Late last year, Mr Brooks lodged a complaint with the NSW Ombudsman about the Department’s handling of the project.

The Ombudsman was currently investigating, he said.

He’s not stopping there. Mr Brooks is also writing a submission for a Senate select committee’s inquiry into governance and the economic impact of wind turbines. He is not only highlighting the Gullen Range wind farm and the Department’s “incompetence” but the fact the developer collected renewable energy certificates, despite alleged “noncompliance” with state and federal regulations, as required.””

Co2Land org therefore must conclude a captains call will be required – then confuse you even more. But in all seriousness – you will note someone will have to pay. Guess who! Hint – you because no one else will be responsible.

Selling short in the energy market – symptom or disease

Have you ever suspected your Energy Company of gaming the rules? Consider this: A energy retailer in NSW has argued they can remain silent on an energy supply transfer and then penalise the customer with adjusted early termination fees. Small business is particularly vulnerable to this activity. Have you been affected? Speak up now.

We write this after a story recently ran that was commissioned by the St Vincent De Paul, 28 May 2014, ‘Energy Retailer not Adequately Disclosing Additional Fees’. It would seem some success has been the outcome. You may find similar matters very common for small business and the protection is less clear. It also follows that small business can be classified under the electricity rules as large when under company rule they are small business. The tactics of taking advantage of a customer is part of our story.

Consider the retailers argument: Section 6.10 AEMO rules prevent them objecting to Transfers in NSW. A wonderful twist that Tony the Weasel would be proud of for sure. What this retailer then did was objected to a ‘to the market to transfer DCL’ (Form called a CR1000) and then withdrew the objection. They then remained silent on their intention to levy the charge. In one instance we know of near $10,000 is the adjusted fee charged.

We find it difficult to think other than they are gaming the rules and defining as it suites them. They are embarking on ‘it may be immoral, but is not illegal’ game at the expense of a trust in what we say not what we do.

If you want more evidence consider that the Energy and Water Ombudsman NSW (EWON) web site is showing up to 85% increase on complaints with energy retailers in 2013, benchmarked over 2012 figures. Just imagine what 2014 must have in store for the Ombudsman.

If we go back to the reference instance – it was claimed they broke a deemed supply agreement and fees are payable. The retailer then ignored requests for transparency of the charges and to explain how is was reasonable to claim so much money. The retailer even ignored that the new retailer offered to give back the customer without penalty to any party. It became obvious the old retailer only want the money and not the customer.

What is wrong with that – big business only says show me the money! We are all nothing but an asset.

Our frustration is such that when we looked for an explanation it seems most feasible that the retailer is actually short in the market for black energy. This term is where it is not renewable or green sources. In effect a panic that they are overexposed to the renewable market because of the current government sending out signals ‘old king coal’ will reign for some time. It follows that the amount of contracted energy into the future and the books determine the risk of that business. It would seem the retailer does not want you to consume black energy, nor do they want you to export renewable energy – you might notice if had considered putting in Solar Array, either covertly or overtly you might be discouraged.

If you accept this short sell idea you could consider the behaviour of finding reason to add fees to your exit is akin to double dipping. They want you to pay for what they do not have, or they have already sold it elsewhere. Possibly this matter should go before the AER, they are quoted as saying they have an eye on these sort of things.

If you check out the AER site and the government site www.energymadeeasy.gov.au you will notice they recommend you lay a complaint with the Energy and Water Ombudsman NSW (EWON). If you do so you should definitely know your wants for any outcome.

One want we recommend you consider is consistent and effective communication is your right.

 

Inappropriate electricity tariffs – it will cost you!

Inappropriate electricity tariffs have the potential to cost excessive amounts of money for the unwary. In NSW for instance, the National Electricity Law (NSW) has gaps in it you can drive a truck through. Consider this: Energy Retailers might know you are paying too much for your network charges, and they take no action. The Energy Retailer can request a review of your charges, but apart from a newly introduced mandatory review period, may not provide this service. One retailer even provided proof in saying the do not have the systems in place to be proactive on behalf of the Customer. In other words it may be immoral, but it is not illegal to withhold the service. CO2Land org has written evidence that one NSW small business has claims of having been on an inappropriate network tariff and it costing them as much as 72% more than needed to pay – how much? Almost a quarter of a million dollars ($250,000)!

Another issue is that a deemed contract can exist whether you are aware or not, and it may be a simple communication error that costs you dearly. As a residential customer it may cost you up to $220 because you entered into a new Energy Service Agreement (ESA) and were not aware you were already contracted to another retailer. The charge is a break contract fee. It will not be transparent and a St Vincent De Paul commissioned report suggests it is also unreasonable.

A similar break fee event, that CO2Land org is aware of, involves a Commercial and Industrial (C&I) customer with an annual energy spends of approximately $50,000 pa. This small business was invoiced in excess of $10,000 (including government fees and charges) for breaking a deemed contract. In that invoice no attempt was made to show how the number was arrived at other than the words ‘to cover costs’ and a list of the government charges. The source of these two examples here is Wintelboff – www.wintelboff.com .

Possibly you should contact your favourite energy advisory and have them look at your bills?

Co2Land org is also aware that through the Office of Environment and Heritage (OEH) and in conjunction with Carbon Training International (CTi) ‘Energy Management Basics Training for Business’ is available. The ‘plug’ is because they also offer to review your billing as part of the class exercise, and provide up to 15 hours of technical advice as part of the course.

We are also aware the NSW Business Chamber is offering discounts to its members of up to 19% if they use Energetics to participate in the Business Chamber’s ‘Better Energy Manager Program’.

Which of these groups is better? It really gets down to cost. The benefits are obvious if you are paying too much.

If we go back to the National Electricity Law (NSW) and the way it is framed – sounds like a Roger Rabbit episode! A quick read will make it clear the consumer advocacy part is weak. A large business must engage through a complex process for its matter to be heard. [As an aside a business can be classified as large if it has energy consumption greater than 160MWh pa. However, it may not be large under taxation and corporate laws]. If you need to go to court over your energy bills, the dispute resolution it will be classified along corporate laws. You could be excused for being confused! A course of dispute resolution is to go to the Energy and Water Ombudsman NSW (EWON). What you should know is EWON is not a government-sponsored body – it is industry member sponsored. The body can also make the choice to be involved in disputes? They will make legally binding judgements, but they decide whether to be involved and you must have your wants clearly made and they must be for more than moral issues. They also have guidelines in the use of the body. Currently, you need to have an annual turnover of less than $2million, employ less that 20 people and be a family run business. Some variation to these guidelines are possible, but you might need to contact them if you have questions www.ewon.com.au .

If you did not know there is ‘spin’ that all this be fixed when the assets are sold? As it happens the poles and wires – the network companies in NSW are state government businesses. If the process is flawed you could expect a reasonable person asking why is it not fixed? The answer may be it is an inconvenient truth right now, we are trying to sell the companies!