I’ll keep your electricity bills down and the lights on – that was Victorian Premier Dan Andrews’ promise to voters recently, and at first glance it sounds pretty attractive. Who isn’t in favour of cheaper and more reliable energy, and tackling climate change with more renewable energy? It may even by a vote-winner.
Andrews is promising, if re-elected next month, to reboot the old State Electricity Commission to achieve just that. Until the late-1990s, the SEC owned all the electricity system – the generators, and the poles and wires – and billed Victorians for their electricity. Its assets were sold in the 1990s, netting more than $23 billion (that’s $45 billion in today’s money) for the Victorian Government – a big contribution to repairing its budget at the time.
If you’ve skimmed the pages of the Herald Sun recently, you’ll know that the future of the electricity sector is highly politicised and wracked with controversy as we try to move rapidly to a system with net-zero greenhouse gas emissions. Andrews’promise is no different. The energy sector is waiting anxiously to see more detail. How will the revived SEC be structured? What is it going to do? How much market power will it have? How will the proposed partnership with industry super funds work?
The government’s reasoning is that the privatised energy system delivered big profits for the companies that bought the businesses – but at the expense of Victorian consumers. And the dirty, privatised coal plants are old, breaking down, and closing. The government proposes that a reincarnated SEC will invest in renewable energy and, in contrast with its ancestor, compete in the commercial market. It will reinvest profits back into the network.
There will be a lot of debate over whether this proposal is the best thing for Victorians. But if re-elected, the Andrews Government will go ahead regardless, so it’s worth considering how it could work in our favour.
Just booting up the old SEC will be about as successful as trying to use Tik-Tok on a Nokia.
The energy market in 2022 is very different to what we had in the 1990s: instead of large, government-owned, monopoly energy providers in each state, the system from Cairns to Hobart to Port Augusta is physically connected in one of the longest power systems in the world. There’s an evolving mix of new renewable generators trading energy across borders, small and large retailers servicing different customer needs, and the legacy coal generators are gradually finding they can’t compete. Financing is more sophisticated, and so are consumers. If you’ve got solar panels on your roof, you’re part of this dynamic market too.
The old SEC could be directed by the minister and the treasurer to do anything they wanted it to do. It needed their sign-off to commit to spending more than $50,000. This might have made sense in 1992, but it makes no sense now. And no sane investor (industry super fund or otherwise) is going to go into partnership with an organisation whose decisions are made on political whim.
If SEC 2.0 is going to deliver for Victorians, it needs to look different. The government should reconstitute the SEC as a state-owned corporation, operating at arm’s length from ministers. Just like the state-owned generators in Queensland, Tasmania and WA, and Snowy Hydro in NSW, it should have an independent board, responsible for running the commission like a company. And this board should comprise people with expertise in running an energy company, not just political cronies who need something to do.
The minister and treasurer should be able to give the board direction as to what they want SEC 2.0 to achieve, but they should let the company make its own decisions as to how it goes about things. Legislation should prevent ministers from directing the organisation to invest in particular projects.
Keeping SEC 2.0’s operations at arm’s length from government will maximise the chances of it delivering the cheapest electricity possible. It will encourage more private investment, by assuring investors their returns won’t be swept away by ministerial caprice. And it will mean cheaper power, because it will prevent excess market power being exercised.
Dan Andrews’ dramatic announcement about taking back control is one thing. Actually delivering affordable, reliable, low-emissions power for Victorians is another. SEC 2.0 won’t be able to do this if it is hobbled by 1990s legislation.
By modernising the organisation, and letting it make its own decisions, the Andrews Government can maximise its chances of success.
While you’re here…
Grattan Institute is an independent not-for-profit think tank. We don’t take money from political parties or vested interests. Yet we believe in free access to information. All our research is available online, so that more people can benefit from our work.
Which is why we rely on donations from readers like you, so that we can continue our nation-changing research without fear or favour. Your support enables Grattan to improve the lives of all Australians.
Danielle Wood – CEO