Appointed as head of the ACCC by Rudd Gillard, Rod Sims has a long association with the ALP going back to the Whitlam years. His re-appointment by the Coalition is unsurprising given the callow nature of conservatives and the fact that many have interventionist sympathies that accord with those of the leftist intelligentsia that Sims represents.
In his speech to the Press Club Sims addresses two points that have been warmly embraced by like-minded people within the media.
The first covers the gas crisis. Sims, though tiptoeing around the wanton political destruction of state government bans, notes that the firms that undertook massive capital investments could not have expected to face a shield-wall of obduracy on the part of politicians with custody over our economic welfare banning the exploration for gas. Only Queensland, where the ALP has kept Coalition openness largely in place, has a relatively open policy.
However he favours a “nudge” approach, which he says the producers have followed, whereby they support the local market as much as possible (even if this is contrary to their commercial interests). He also says, offering a big hint “I am not disclosing the detail of what is in the ACCC’s report to the Treasurer on gas supply and demand. That will be made public shortly.” In other words he will advise the Commonwealth to force firms to break overseas contracts to redress the damage that state governments and environmentalists have created in starving the nation of new gas supplies. Naturally, like all such leftists he will advise on such actions that are pregnant with implications about the reliability of the nation’s export contracts, with a heavy heart.
In the case of electricity his speech addresses two aspects that have driven up prices: network charges and generation/retail costs.
In the case of network charges that are regulated,, like any self-interested bureaucrat, he’d prefer his agency’s decisions were not reviewable by another. He may be right but he is the wrong person to be making such judgements.
In the case of other costs (accounting for 60 per cent of the recent price increases) he lumps them together but in side briefings with sympathetic journalists like Paul Kelly he spelled out the breakdown as being caused by 24 per cent retail margins, 19 per cent generator price increases and 16 per cent green schemes. These are fantasy totals that obscure rather than enlighten policy.
Why,, given the fact that there are three major retailers and two dozen others (some, like Engie and Snowy, major businesses) competing for the retail market, have prices increased? The inference is that retail margins are too high but how is that possible when there is so much competition? (Even though, in passing, the ACCC has somewhat constrained that competition by banning some marketing techniques). The answer is that the retail costs have risen as a result of the regulatory policies (dominated by but not exclusively green schemes). In trying to disaggregate these costs, the portion attributed purely to retail needs to be heavily qualified, something the AEMC does but others seeking direct controls, like the Victorian regulator, avoid paying attention to.
Similarly attributing the cost increases to higher generator prices obscures the true cause of these, namely that subsidised renewable policies have driven out of the market, as they are intended to, the low cost fossil supplies. The latter until recently received a $40 per MWh price for their electricity and were forced into costly stop-start operations by the preference given to wind which receives a $80 per MWh subsidy in addition to the market price.
Now generators have been forced to close, less competition has doubled the market price.
Sims analysis fails to recognise these causal effects and his solutions, though highly palatable to those looking for culprits other than green subsidies, will be equally deficient.