Melbourne- Day 1

Some initial thoughts about Melbourne. There is an interesting mix of old buildings crafted from stone and brick as well as new buildings that tower over the old reflecting sunlight off steel and glass. Although there are certain European aspects to the City, I get much more of an American influence. I don’t meant to imply that the US had anything to do with Australia’s cultural development, but the parallels cannot be ignored: both are relatively young nations, both a nation of immigrants, both cultures celebrate rugged independence, both share a similar language, and both are blessed with land that has abundant natural resources. Granted, I’ve only been in one city for a few hours, but already I sense a kinship with Australia and understand the long relationship between the nations.
My first meeting was with Shane Breheny, CEO of Citipower and Powercor, and Garry Audley, General Manager of Electricity Networks. Great first meeting, although I had just gotten off the plane and was a little foggy, this was a great introductory meeting. Citipower and Powercor are distributors of electricity. Australia has separated their generators from their distributors for many reasons, but the one most relevant here is that it allows for the encouragement of efficiency measures. In other words, it makes it much easier to encourage your customers to use less energy. Australia has no nuclear power, born out of the anti-nuclear movement in the 1970s, so they rely heavily on coal. However, there is also a realization of the impact of carbon emissions on the environment. This means that they are attempting to integrate renewable energy into their portfolio. Both Shane and Gerry indicated that the integration of renewable resources as well as the encouragement of efficiency measure is the biggest challenge facing the company. Although there seems to be sufficient interests and technological advancement in the renewable energy field, there is very little thought being put into how the renewable technologies are integrated into the existing grid. Also, while there are policy pronouncements from the Government regarding renewable and efficiency measures, the regulations regarding implementation are lacking. For example, while the Government outlawed incandescent light bulbs, they did nothing to develop standards regarding compact fluorescent light bulbs (CFL). The result was that people used substandard, albeit cheap, CFL’s from China that did not last as long nor did they work as well. This undermined the use of CFL’s by the public as well as the efficiency benefits of the bulbs.
Citipower and Powercor’s rates are set by the Australian Energy Regulator. They are set on a five-year cycle, although the process was described as very “formulaic.” They described the process as fair and not too intrusive. Although the rates are set for five years, there are some costs that are trued-up annually, so if the company overspends some of its projected costs, they eat the difference. However, there are some incentives such as revenue increases for achieving service benchmarks.
Finally, Citipower and Powercor are in the process of deploying advanced meters. Not only do these meters allow demand response and other conservation procedures, they also must be able to be “interrogated” by devices that allow the ratepayer to see real time usage information.

My second meeting is with Bill Scales. Mr. Scales was the Chairman of the Energy Reform Implementation Group which was tasked by the Council of Australian Governments to review and report on potential Energy Reform in Australia. The result was a report entitled “Energy Reform, The way forward for Australia” that was delivered in January of 2007. Although the report was very specific to Australia’s regulatory scheme, the process that they engaged in was very important. First, his commission identified the scope of the problem. They made a conscious effort not to overstate the problem and to point out what was not broken with the scheme. Next they took a broad look at the Australian market structures, regulatory structures and the financial markets. The conclusions clearly have applications for the US. First, they concluded that the market structure needs to offer allow for both incentives and disincentives that will promote the most efficient market structure. Next, The regulatory scheme needs to reinforce these rather that create the incentives or disincentives. Finally, the financial markets must accurately and rationally reflect the market structure.
Through this process, they discovered that the singular most important factor in helping create the market structures be accurate is the price of carbon. If the price of carbon is accurately reflected in the market, then the regulatory schemes and the financial markets almost self-regulate.

Tonight, I went to dinner on Hardware Lane near the hotel. It is a small street with European style restaurants. Hostesses were aggressive in getting people into their restaurant. I had nice seafood paella. I was tempted to get the Kangaroo, but I wasn’t sure how to explain to my kids that I ate Joey the Kangaroo…but give me time, I may figure it out.