Every five years, the federal energy regulator grants the distribution and transmission network companies an allowance to spend on capital and operating costs. All the networks have to do is produce a spending proposal that looks “reasonable” – it’s up to the regulator to prove that it isn’t.
In 2009, it was generally agreed that the poles and wires were in a parlous state, especially in NSW and Queensland, and needed significant upgrades. The networks also claimed to need billions to build newinfrastructure, to meet soaring demand. The trouble is, the networks’ data was wildly exaggerated, and the demand they predicted has not materialised; it probably never will. The regulator approved a staggering $45 billion of spending.
He forgot to mention that the only way the government could get the states to agree to the new body was to allow them to control it. “Many states owned the network businesses, and they didn’t want a federal regulator coming down too hard on them,” says Rod Sims, chairman of the ACCC. So the states’ energy ministers were put in charge of a separate new body, the Australian Energy Market Commission (AEMC), which was to write the rules for the regulator to enforce.
“It was like putting Dracula in charge of the blood bank,” says Roman Domanski, the former head of the Energy Users Association of Australia. “It should never have happened.” The AER was under-resourced, inexperienced and easily outgunned and out-manoeuvered by the states and the networks. To top it off, the states were also allowed to appoint two of the AER’s three commissioners.
It’s impossible to say which states wielded the most influence at the AEMC. Certainly the rules were kind to those with state-owned networks, and since NSW was one of the most egregious over-spenders, it seems reasonable to question the degree of influence its state ministers had on the process.
A roll call of recent NSW energy ministers reads like an ICAC subpoena list. In 2006 and 2007, as the states were writing the rules for the new regulator to enforce, NSW had two energy ministers: first the corrupt Joe Tripodi, then the corrupt Ian Macdonald. Macdonald disgraced himself in 2009 when, as the NSW networks were preparing to spend billions on new poles and wires, he accepted a night with a prostitute in return for setting up dinners between state energy executives and the infamous property developers Ron Medich and Lucky Gattellari. (Gattellari was later jailed for his part in the murder of Sydney standover man Michael McGurk.) In 2011, when the Coalition swept Labor from power, the new premier Barry O’Farrell awarded the energy portfolio to Chris Hartcher, who stayed in the job until ICAC came knocking in December last year.