INDUSTRY BACKGROUND
Since 1991, governments in Australia have been undertaking restructuring and reform of the electricity industry. State owned utilities have been disaggregated into separate generation, transmission, distribution and retail supply entities, corporatised and, in some jurisdictions, sold to the private sector. In 1994, the introduction of competitive wholesale and retail electricity markets resulted in trading across state borders and, over time, the concept of state bounded entities has continued to lose relevance. The central element of the reforms was the establishment in December 1998 of the National Electricity Market (NEM), which now links the Australian Capital Territory, New South Wales, Victoria, South Australia, Queensland and Tasmania. (Please see <http://www.nemmco.com.au>, the website of NEMMCO, the National Electricity Market Management Company, for more details.) Western Australia is not part of the NEM, for reasons of geography. It has, however, established the Wholesale Electricity Market (WEM), which commenced energy trading on 21 September 2006.
In April 2007, the Council of Australian Governments agreed to establish an industry-funded National Energy Market Operator (NEMO) for both electricity and gas, scheduled to commence operations in July 2009. The new body will replace the functions of NEMMCO and the gas market operators. It will also undertake a national transmission planning role. The governments of Western Australia and the Northern Territory will consider participation in NEMO at their discretion, under terms of the Australian Energy Market Agreement.
Another continuing trend has been the diversification of energy businesses with the aim of providing their customers with a wider range of energy services. This has seen electricity businesses enter the gas market and, conversely, gas businesses enter the electricity market as opportunities expand within these markets. Because each business unit reporting in ABS surveys is classified to one industry, based on its predominant activity, such diversification can affect the statistics in this chapter and those in Chapter 3 Gas Supply Industry. The ABS attempts to minimise the impact of this as described in paragraph 14 of the Explanatory Notes.
Deregulation has allowed new entities to come into the market and compete for customers. It has also resulted in a number of long established entities being dismantled or sold off. The effect of disaggregation on industry structure has been to change single entities wholly classified to the electricity supply industry into a number of smaller entities, some of which may be classified to industries other than electricity supply. Those entities classified to other industries do not contribute to the statistics for the electricity supply industry. Examples of activities formerly carried out by businesses classified to the electricity supply industry, but which are now largely carried out by specialist businesses classified to other industries, are network construction, repair and maintenance of electricity transmission towers, and power pole inspection.
Effect on these data
These changes to business structures have a direct impact on the data presented in this publication, but not all impacts are in the same direction. Where several smaller specialist business units wholly classified to the electricity supply industry have been created from one vertically integrated business, transactions between these businesses are recorded in the statistics (such as sales from the generating business to the distributing business). Previously, such transactions were internal to a single business and generally were not recorded in the statistics. This situation tends to increase sales and purchases values for the industry, but should have little direct effect on statistics for industry value added, operating profits or capital expenditure. On the other hand, the estimates of several data items (wages and salaries and capital expenditure in particular) for the electricity supply industry will be reduced if activities such as those mentioned in the previous paragraph are now carried out by businesses classified to other industries.
Generally, private sector businesses which are engaged in the electricity supply industry and conduct their own construction and maintenance operations tend to do so through separate business units (typically classified to ANZSIC Division E, Construction), which employ most of the staff engaged in those activities. Government owned businesses in this industry, by contrast, are more likely to employ these staff in a business unit which is classified to the electricity supply industry.
Ownership changes and restructuring in both the public and private sectors of the electricity supply industry continued during 2006-07. Queensland privatised most of its retail energy operations, and merger, dermerger and acquisition activity occurred in the private sector. The Australian Energy Regulator reports a tendency to greater specialisation in ownership, with primary focus on either network infrastructure or the non-network (generation, production and retail) sector.
In 2006-07 electricity generated in Australia increased by less than 1% (cat. no. 8301.0.55.001, Manufacturing Production, Australia, December 2007), while the Consumer Price Index relating to electricity (weighted average of eight capital cities) indicates that prices for household consumers were 3.3% higher than in 2005-06. However, wholesale prices of electricity sent out through the NEM increased significantly in 2006-07. NEMMCO reported that, whereas the volume of electricity traded increased by 1%, the value traded ($11.4b) was 60% higher, than in the previous year. In particular, sustained high prices occurred in the latter part of the year, largely as a result of drought, record demand and capacity constraints.
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