To CSG or not to CSG, that is the question for NSW

New South Wales is finally grappling with issues in its burgeoning coal seam gas industry that Queensland has had to deal with for several years. As early as 2008 Lucas Energy described NSW as “full of opportunity” for CSG companies. But the State was slow to catch on. Currently, gas makes up 10% of the NSW energy mix and more than 90% of that gas is imported from other states. But that is rapidly changing as companies attempt to exploit its rich resources to feed the Asian and local gas market. The State Government has approved exploration wells and extraction projects in Gunnedah, the Hunter Valley and Sydney’s southwest and applications are in place for the Illawarra and Gloucester. But as the industry flexes its muscles, it is beginning to run into some stern resistance.

The Greens’ Jeremy Buckingham has introduced a private member’s bill in the NSW Upper House which proposes a 12 month moratorium on “the granting of exploration licences for, and the production of, coal seam gas; and for other purposes”. It also wants an end to mining in the Sydney area.

NSW Labor has done a 180 degree turn in opposition and now supports Buckingham’s moratorium. Labor leader John Robertson announced a new policy this week of supporting a moratorium on coal seam gas licences, the issuing of extraction licenses and applications to expand existing operations. Robertson said the Government should not be allowing CSG extraction to proceed until a water-tight regulatory framework is in place based on “independent scientific research and conclusive evidence”.

Their party comrades north of the Tweed are still in Government but face opinion polls of 39-61 and are likely to lose next year’s election. With three major projects approved, the incoming Queensland LNP are unlikely to change their mind and support the ongoing moratorium calls from farm and environmental groups. And a NSW moratorium won’t succeed without the support of the NSW Liberal Government. The voters may be uneasy about CSG, but the new NSW Government is looking enviously at Queensland’s royalties.

When NSW Premier Barry O’Farrell was elected in March, he immediately announced a 60-day moratorium on CSG exploration licences citing concerns about the contamination of prime agricultural land. When that expired, NSW Resources and Energy Minister Chris Hartcher imposed further regulations on the industry including banning the BTEX chemicals banned by Queensland, a continued moratorium until the end of the year on fracking, the need for water licences, a ban on evaporation ponds and new public consultation guidelines. Hartcher continues to tiptoe around the issue. He said it was important the inquiry heard all views, including that of industry. "Everybody's interests need to be looked at and considered including those of landholders, the industry and the government,” he said.

But the Libs have constituted an Upper House Inquiry conducting statewide public hearings on August 5. It was tasked to “inquire into and report on the environmental, health, economic and social impacts of coal seam gas activities” and also examines CSG’s role in “meeting the future energy needs of NSW”. Its report is due on April 6, 2012.

Local government officials are telling the Inquiry they are unhappy with the industry. Lismore City Mayor Jennifer Dowell told the Inquiry her council was opposed to CSG developments. Dowell cited issues such as produced water, evaporation ponds, irrigation groundwater contamination, methane leakage, loss of prime agricultural land, landholder agreements and social impacts. At the same hearing Ballina Mayor and presidential of the regional group, Phillip Silver agreed with Lismore but recognised an inconsistency in that resolution; “Similar to climate change, fluoridation and other scientific matters there probably never will be a unanimous scientific view,” Silver said.

It is the proposed exploration well in the inner Sydney suburb of St Peters that is been particularly controversial because it is close to residential properties and the well would penetrate an aquifer. Dart Energy hold a Petroleum Exploration Licence for the Sydney Basin covering 2385 km2 of the Sydney Basin from Gosford on the Central Coast to Coalcliff south of Sydney. Sydney Mayor Clover Moore says they want a halt to the issuing of exploration licences. Sydney’s submission argues that aquifers and groundwater systems could be significantly impacted. "Gas can help us transition to a greener future, but that can't happen unless the environmental safeguards are in place," Moore said. "Gas is not greener if we destroy our farmlands to get there."

Major industry player Santos fronted the Inquiry on Thursday. They have been producing CSG in Queensland since 1995. Not surprisingly their submission is in favour of coal seam gas mining. They said the practice was safe and environmentally sustainable. Of importance is the fact Santos have bought NSW leading player Eastern Gas for just under $1 billion which builds on Santos’ existing interests in the Gunnedah Basin. Eastern Star Gas Limited's Narrabri Power Project supplies gas from the 11.3 PJ Proved and Probable gas reserves at the Coonarah Gas Field, (12 km west of Narrabri), to the Wilga Park Power Station under a 10 year agreement with Country Energy.

The word is that Santos needs NSW gas to meet their first train commitments in 2014-2015. Santos vice president for eastern Australia James Baulderstone told the hearing on Thursday Santos's acquisition of Eastern Star made it the principal CSG exploration and ultimately production business in NSW. Baulderstone said Santos have withdrawn the controversial 270km Mullaley pipeline from Narrabri to the Wellington power station.

However he argued strongly against issuing a moratorium on CSG exploration until more scientific data is available, as CSG opponents have requested. "Let's be frank, many of those that oppose our industry know that stopping exploration now will stop the long-term development of the industry in NSW," Baulderstone said. "Ongoing exploration activity provides the additional scientific data and knowledge of the geology and water resource that everyone agrees is needed." Barry O'Farrell will have to decide come April, if as is likely, the Government doesn't support the private member's bill.

The Emperor's New Car: why electric cars won't solve energy issues

“In 21st century consumer culture, even ostensibly useful items like running shoes and cars are frequently replaced, not because they are worn out, but because they no longer produce sufficient gratification in the form of status or novelty.” [The Emperor's New Car]

A car buyer’s guide is not where I expected to find the most penetrating analysis of western consumer culture I’ve read in a long time, but that is exactly what The Dog and Lemon Guide’s editor Clive Matthew-Wilson has provided in the brilliant “The Emperor’s New Car”. The Emperor’s New Car is ostensibly a critique of the economic and environmental value of electric cars but in order to make his points Matthew-Wilson has poured question upon question until he gets to the root of the problem: it is our materialistic lifestyle that is killing the planet not the use of petrol-fuelled cars.

Matthew-Wilson begins by comparing the advantages and disadvantages of electric cars. On the positives, they improve air quality, reduce traffic noise, reduce reliance on oil from politically volatile countries, reduce emissions (but only if using electricity from renewable sources) and may be more fuel efficient. These advantages are balanced by the negatives: most electricity is produced from highly damaging fossil fuels, electric cars are still less efficient than mass public transit, there is a serious shortage of accessible energy, private cars are an unsustainable transport model, and they are being financed with taxpayers’ money as a bailout of car companies.

The world’s shortage of oil, says Matthew-Wilson, can be best understood as an energy shortage. This is exacerbated by energy wastage and resulting pollution. The West’s energy lifestyle relies on the East staying poor and undeveloped. 25 percent of the world uses 85 percent of its resources. The world simply does not have the resources, renewable or otherwise, to sustain lavish lifestyles in the west let alone across the globe.

Car ownership is embedded in western culture and with it an illusory sense of freedom. But the private electric car cannot solve the US energy and pollution problem because the private car is not the biggest waster of energy in America. That honour goes to homes mostly poorly designed and poorly insulated, far from services and now full of gadgets that are an energy sink. Worldwide the demand from gadgets will require building the equivalent of 560 coal-fired power plants, or 230 nuclear plants and while experts are promoting mandatory efficiency rules no one is advocating restraint in purchases of consumer electronics.

Shipping is also major problem. As few as 16 ships create as much pollution as all the cars in the world. These ships carry consumer goods providing temporary gratification. The nub of the problem therefore, says the report is not so much the car by itself, but a package deal of wasteful cars, wasteful suburbs based around cars, together with a wasteful society based around consumption, with the car as the most obvious symbol of this waste. “Changing the way that American cars are powered will not solve the built-in problems of the American system of over-consumption.”

Globally the problem of materialism is compounded by energy wastage. China’s growth and demand for energy soon outstrip any environmental gains made within the West. The West’s addiction to consumption has fed the uncontrolled Chinese boom with its poor safety record. China's vast underground coal fires make an enormous, hidden contribution to global warming annually releasing 360 million tons of carbon dioxide as much as all the cars and light trucks in the US.

The report also side-tracks into such unexpected places as the dangers of WalMart car parks, the US diet and excess consumption. The conclusion is straight-forward and likely to be unpalatable to many: the only way a society hooked on excess energy consumption can solve the problem of excess energy consumption is to reduce its energy consumption to a sustainable level. The problem with the electric car movement, said Matthew-Wilson, is that it is based around the falsehood that it is possible to continue the American car-based lifestyle of the twentieth century by changing the form of energy used to power it. Read the report and act; it is a clear-eyed and compelling prescription for societal change.

House of Reps goes with the wind

Despite White House opposition, the House of Representatives has approved a $18 billion bill to boost energy production from solar, wind and other renewable sources and to promote energy conservation. The bill was condemned by the Bush administration, Republican lawmakers and Big Oil who said it would raise fuel prices for consumers, discourage oil and gas exploration in the US and unfairly discriminate against the oil industry.

The bill still needs to pass the Senate where it has failed three times already. The last time such a bill failed in the Senate, it lost by one vote and presidential frontrunner Senator John McCain of Arizona did not cast a vote. However, supporters say that by extending tax breaks for wind and solar energy, the bill will prevent the loss of jobs linked to those fast-growing industries. Wind and solar energy companies argued strongly that investment would diminish without an extension of investment and production tax breaks which expire at the end of the year. The bill extends production tax credits for both wind and solar for three years.

Wind energy is the leading source of renewable electricity. Wind currently produces just over 1 per cent of world-wide electricity use. However some EU countries are well ahead of this average: wind accounts for approximately 19 per cent of electricity production in Denmark, 9 per cent in Spain and Portugal, and 6 per cent in Germany and Ireland. However, the cost of renewable energy technologies is significantly higher than the cost of energy derived from fossil fuel. This higher cost acts as a major barrier to their widespread introduction. The Global Wind Energy Council (pdf) says political action is needed to address distortions in the world’s
electricity markets created by many decades of massive financial, political and structural support to conventional technologies.

The biggest challenge for utilities producing electricity from wind is providing a constant flow of power, as weather conditions change throughout the day. This is where batteries come in. Xcel Energy Inc announced last week it will begin testing technology to store wind energy in batteries, The company said a fully charged one megawatt (MW) battery could power 500 homes for over 7 hours. Xcel Director of Corporate Planning Frank Novacheck said the battery would serve as a sort of "shock absorber" that will charge when the wind blows and supplement power flows when there is little or no wind.

The idea of wind power is has an ancient history. The Romans used windmills to grind grain, and the Dutch used them to keep back the sea. Early ranches in America commonly used windmills to pump water and even, in the early 20th century, to generate electricity. In 1887, Charles F. Brush designed the first windmill that powered electric lights. That machine had 144 blades and operated for 12 years. The demise of the early wind systems was hastened during 1930s by two factors: the demand of farms for ever larger amounts of power on demand, and the Great Depression, which spurred the US to stimulate the depressed rural economies by extending the electrical grid throughout those areas.

Mark Diesendorf from the Institute of Environmental Affairs at UNSW believes a mix of renewable energy sources can substitute for a conventional electricity supply system based on fossil fuels. He says wind power can substitute for coal-fired power stations. Diesendorf disputes the argument that wind cannot be a dependable source of energy and says 20 per cent wind energy contribution to electricity generation needs a relatively small amount of peak-load back-up, operated infrequently, in order to restore the reliability of the supply system to that of the pre-wind system. These he says could substitute for several of Australia’s coal-fired power stations.

Oilmen such as Terry Hudgens also sees the benefit of wind power. The former Texaco executive says he is getting into wind for the same reason he got into oil – because it’s a good way to make money. Hudgens is working on Maple Ridge Wind Farm in New York state. The farm's 195 huge white wind turbines catch steady airflow off the Great Lakes and produce 321 MWs on a good day, as much as a midsize coal- or gas-fired plant.

Companies like Hudgens's have had to invest without any government assistance. In the US petroleum and coal companies received more than $33 billion in direct subsidies between 1992 and 2002 while the 2005 energy bill gave the oil and gas industries $6 billion in subsidies another $10 billion to coal. Meanwhile, renewables can barely insure even a basic production tax credit of 1.9 cent per kilowatt hour.

In Australia the industry is similarly skewed towards fossil fuels. Australian governments provide substantial financial support for the production and use of fossil fuels, through direct payments, favourable tax treatment and other actions. These subsidies keep the cost of fossil fuel energy artificially low and make it harder for renewable energy to compete.

They also distort energy markets in favour of greater use of fossil fuels, as well as creating higher levels of greenhouse gas emissions. But as Mark Diesendorf says, the barriers to a transition to renewables are not primarily technological or economic. They are, he says, the political power of the big greenhouse gas emitting industries. The likelihood of a fourth defeat for the renewables bill in the Senate is proof positive of this.

The ethanol fraud

Two damaging new studies released last week have shown ethanol is even worse for the environment than fossil fuels. The studies found that almost all biofuels currently in use cause more greenhouse gas emissions than conventional fuels if the full emissions costs of producing these so-called “green” fuels are taken into account. The destruction of the ecosystems converted to cropland releases greenhouse gases into the atmosphere as well as reducing the amount of carbon sinks as the cropland also absorbs far less carbon than the land it replaced.

The peer-reviewed Science journal printed both studies on ethanol and other biofuels. The first by ecologists at Princeton, the Woods Hole Research Center, and Iowa State University was the first ever comprehensive review of the environmental consequences of increased biofuel consumption. It found that over 30 years, use of traditional corn-based ethanol would produce twice as much greenhouse gas emissions as regular gasoline. The second study by Nature Conservancy along with University of Minnesota researchers, found that converting rainforests, peatlands, savannas or grasslands in Southeast Asia and Latin America to produce biofuels will increase global warming pollution for tens to hundreds of years.

The key finding of the studies is that global production of biofuels results in new lands being cleared, either for food or fuel. Land use had not previously been taken into account in ethanol studies. The end result is massive carbon debt. Even in the best case scenario of Brazilian sugar cane grown in scrubby savannahs, a carbon debt is created which takes 17 years to repay. The worst case scenario is Indonesia palm oil displacing tropical rainforest growing in peat which invokes a carbon debt of 423 years.

The process of turning plants into fuels causes its own emissions especially in the areas of refining and transport. The result is bad maths for fans of ethanol. Grassland clearance releases 93 times the amount of greenhouse gas that would be saved by the fuel made annually on that land, said Joseph Fargione, lead author of the second paper, and a scientist at the Nature Conservancy. “So for the next 93 years you’re making climate change worse, just at the time when we need to be bringing down carbon emissions.”

The US is making the problem worse by heavily subsidising the ethanol industry. Already subsidised to the tune of $3 billion each year, the gravy train is about to get even richer. Iowa is the centre of the industry and state farmland values are up 18 percent in the past 12 months, according to Federal Reserve Board surveys, making paper millionaires of farmers owning more than 200 acres. Now a bill recently passed in Congress will provide another whopping $10.5 billion to the industry regardless of prices, profits, yields or weather. "A farmer's best friend in Iowa is the energy bill," said Bruce Babcock, a professor of economics at Iowa State. "What do you need the direct payments for? It's money for nothing."

Interestingly however, Babcock refused to sign off the first report which was co-authored by several economists at Iowa State’s faculty in the centre of the corn-growing belt. The study was based in part on a model developed at the University's Center for Agricultural and Rural Development for estimating changes in global crop production. Babcock claimed he was not sufficiently comfortable with the study's methodology because it relied on outdated land-use data from the 1990s. Nonetheless he agreed with the study's fundamental premise, that increased use of biofuels would boost commodity prices and encourage more crop production.

Biofuels expert Michael O’Hare at The Reality Based Community reiterated some of these points about to growing emissions. Firstly as more corn is used to make ethanol, the corn used is no longer in the food and feed corn market. This causes corn prices to increase which in turn is likely to stimulate the demand to grow more corn. Corn growing will intensify with additional fertilization which generates the potent N2O greenhouse gas. This increase will also impact land use for other crops which may make it more profitable for ranchers to turn more forest into farmland, further adding to greenhouse emissions.

Consumers are paying for ethanol subsidies with increased grocery prices. Production of ethanol also means we avoid looking at the longer-term problem: how to reduce consumption of transport fuel. Biofuels are an increasing extravagance and seem only to exist as result of lobby group pressure for those getting rich on the subsidies. As George Monbiot says “there is no such thing as sustainable biofuel.”

Biofuels cause severe greenhouse problems and a land-grab for farmers desperate to get in on the act. Where land is not available, food production suffers. As Monbiot again puts it “every time we fill up the car, we snatch food from people's mouths.” Ethanol is a costly and criminally inefficient solution to our energy problems. According to Minnesota's Republican state senator David Hann, "ethanol is bad science, bad environmental policy and bad economic policy." Now the scientists have offered proof to show Hann is right. Its time to end the cornball.

Suntech predicts cheaper solar power

Chinese solar company Suntech Power said today it expects solar cell prices to go down as early as 2008 fuelling demand for solar energy. Suntech Power makes silicon photovoltaic cells for solar panels. Up to now the industry has been heavily subsided by government grants which have kept customer prices high. Suntech boss Sri Zhengrong said “price cuts would allow the industry to flourish without artificial supports, increasing its transparency”.

The biggest impediment to keeping prices low is likely to be the availability of silicon. There is a severe worldwide shortage of poly-crystalline silicon which could last for five years. Polysilicon prices have doubled in less than two years and are expected to rise by another 30 per cent in each of the next three years. The problem is due to the fact that polysilicon is also used to make silicon chips and there is competing demand between the booming semi-conductor industry and the rapidly expanding solar sector.

Suntech is the world’s fourth largest solar cell maker. Suntech Power is listed on Nasdaq capitalised at $US5.5 billion. 44 year old owner Shi Zhengrong, an Australian citizen, is now the richest man in China. Forbes estimate his personal wealth in 2006 at $2.2 billion. Remarkably China accounted for just 10 percent of sales. Most of Suntech's equipment is exported to Europe. Its key markets are Germany, Japan and Spain, all of which have statutory requirements for utilities to buy solar-generated power. The company sales soared 165 percent from 2005 to 2006, getting to just short of $600 million for the year.

Now it is beginning to focus on America. Currently the US accounts for just 3 per cent of Suntech’s sales. On Tuesday the company announced San Francisco would be its US headquarters. Zhengrong said that the US was slow to take up solar but that within two or three years it could become the world's largest solar market. He believes this growth will be spurred by abundant sunshine and leadership from states such as California. Looking beyond solar cells, he wants the company to design whole solar systems. Zhengrong said Suntech may establish a research centre in Arizona or California, and may want to buy more small solar companies.

Shi Zhengrong established his solar power panel manufacturing enterprise in 2001. Zhengrong was educated in Shanghai where he obtained a master's degree in laser physics. He moved to Sydney to study optics in the late 1980s. In 1989 he became a PhD student in the groundbreaking photovoltaics laboratory run by two University of NSW professors and solar pioneers Martin Green and Stuart Wenham. In 1995 Zhengrong was appointed deputy director for research at Pacific Solar, a co-operative venture between the university and Pacific Power. Zhengrong took out Australian citizenship and seemed content to stay in Sydney.

But he changed his mind after a 2000 visit to his homeland. Zhengrong was excited by the rapid development he saw and was persuaded to return to Wuxi on the outskirts of Shanghai to start up Suntech Power selling solar equipment. The company started with 20 employees and $11m in government grants. The company quickly turned a profit and by 2005 Suntech (STP) successfully launched on the New York Stock Exchange. It is now the largest solar module manufacturer in the world, has four production sites in China and employs 4,000 staff globally.

Despite Zhengrong being the product of the local university system, Australia has been slow to take up the challenge of solar power. Lack of funding and government climate change scepticism has irreparably damaged the industry here. Murdoch University Professor of Energy Studies Dr Phillip Jennings said scientists would lose research grants if they openly criticised Federal Government policies on renewable energy or climate change. “I think the Government has had a stopgap, sort of stop and go, approach to renewable energy,” he said. “Every time criticism has arisen or a crisis has blown up, they've thrown some more money at it.”

The government has short-sightedly stripped solar energy of research funding, as well as closing the Energy Research and Development Corporation and the Cooperative Research Centre for Renewable Energy. Former federal energy policy adviser Guy Pearce has blamed vested interests. “It's important to understand that some of the same interests who have persuaded our government to avoid emission cuts domestically also have an interest in domestic nuclear power,” he said. “Our two biggest uranium producers are also in the coal and aluminium business”.

power to the people, profits to the plc

Energy competition is coming to Queensland. Energy is a big business in Queensland, a $13 billion industry with 1.8 million customers. Up to now the Queensland government owned much of this business. Soon private companies like Origin Energy, AGL and Australian Pipeline Trust will be taking a much bigger slice of the pie.

The process has already started. Any day now, half a million customers in the South-East of the State will be getting polite welcome notices in the mail from their new suppliers of gas and electricity. Then as of 1 July 2007, this multi-billion dollar business will be open to full competition.

From this onward date the Queensland energy market moves to what is called Full Retail Contestability (FRC). FRC is effectively open slather. It will allow residential customers to ditch their current arrangements and choose their own electricity and gas suppliers. The Queensland State Government is very happy about the new arrangements which have netted them three billion dollars. But questions remains over several aspects of the process including the need for privatisation, the anti-competitive takeover deals between the new owners, what will happen in the rural sector, and what will it cost?

There is plenty of Australian experience Queensland can use to make it work. Victoria was the first state to introduce FRC in 2001 and NSW followed six months later. South Australia and Western Australia are now also FRC compliant. However, due to economies of scale, FRC only works in large urban areas, effectively the markets in and around the capital cities.

In April 2006, the Queensland Government announced it too would move its South East corridor gas and electricity systems to FRC. Speaking to a parliamentary estimates committee three months later, Deputy State Premier Ms Anna Bligh said “as a government we felt it was our obligation in the interests of protecting taxpayer assets to sell these retail businesses”.

The Government passed an Energy Assets (restructuring and disposal) bill in October. The aim of this bill was to develop a speedy process to deal with the licensing of the energy retailers. State Premier Peter Beattie pushed through the privatisation bill despite opposition from Queensland Labor’s union-controlled factions.

As a compromise to the factions’ anti-privatisation position, the Government decided not to sell the energy infrastructure. Beattie justified the decision not to sell the infrastructure by telling the ABC, “it’s just that it is not in the state’s interest to sell the poles and wires and it is not in the state’s interest to sell all our generation, and we won’t do it”.

In any case, this is not the first privatisation of energy in the state. In 1998 the Queensland electricity market was opened up to enable large power users, mainly heavy industry, to choose the retailer that supplied them. Since that time, in four steps the contestable market has progressively been opened to smaller consumers of electricity, but still firmly in the commercial sector. Now retail too is up for grabs.

The Queensland Government moved quickly after the Energy Assets Act was passed. The target was the south-eastern retailer Energex. In scope for sale was their electricity and gas systems. Over the last few months these systems have been sold off to the highest bidders in four deals that have netted billions to state coffers.

But Energex was not purely a retail organisation; it is a mix of two radically different organisations. Its distribution arm is a monopoly network business worth around $4 billion. It provides maintenance of engineering assets and has about 3,000 mainly trade-based staff. Meanwhile the retail arm has a few hundred white-collar workers skilled in marketing and managing the financial risks around the highly volatile wholesale price of electricity. And while the retail arm is being hived off, the distribution arm of Energex Ltd will remain Government owned after the sale. It will continue to be responsible for the operation of the electricity supply network – the poles, wires, substations and cables in the area from Gympie South to the New South Wales border.

But Energex has now lost its lucrative south-East Queensland residential market. In April 2006, the Queensland Government estimated that the sale of Energex’s retail arm would bring in about a billion dollars. That was a spectacular under-estimation. Earlier this week, the sale of the fourth and final part of the retail arm brought in $1.2 billion alone and revenues for the total four parts is in excess of $3 billion.

The move to FRC is being overseen by VENcorp (the Victorian Energy Network Corporation). Queensland Energy Minister John Mickel said VENCorp's expertise in managing contestability was critical to cost-effective implementation of full retail competition, for both industry and consumers. While it is practical to use a Victorian company experienced in the ways of privatisation, it is also important for the Government to be seen as having a hands-off approach.

They have been scarred by Energex in the past. In 2004 an independent report found the Beattie’s government had stripped so much money from Energex (95 per cent of their profit), that power services to Brisbane started to fail because there was no money left for proper maintenance.

Now VENcorp will deal directly with the three new players in the Queensland energy market. The companies that now own expensive assets are: Origin Energy, Australian Gas Light (AGL) and Australian Pipeline Trust (APT). Why did these energy companies pay three times over the expected odds to win the business? The answer is a matter of numbers. Queensland’s energy consumption is forecast to grow at 3.5 per cent per annum over the next decade while the population is expected to increase by 43 per cent over the next 20 years.

The new owners have taken different slices of the pie. The Sun Retail (formerly known as Energex Retail) business sells electricity to 1.2 million customers in south-east Queensland. The State Government decided that in order to “boost competition” it would sell Sun Retail’s electricity customer base in two parts. In the first tranche in December, 800,000 of its 1.2 million customers was sold to Origin Energy for $1,202 million. Sun Retail’s LPG business and its 53,000 customers were also sold in this tranche.

Now the rest of Sun Retail also has a new owner. On Monday this week, AGL announced it paid $1,200 million for the final tranche of the retail sale: Powerdirect Australia. The acquisition delivers AGL an additional 480,000 accounts. AGL's purchase equates to about $1300 per customer, well above Origin Energy's acquisition of Sun Retail which equated to a price of about $1100 per customer. This is AGL’s second investment in the asset sale. Late last year they also bought Queensland’s Sun Gas business and its 400,000 customers. AGL paid $75 million for this transaction.

The final part up for sale was Energex’s natural gas retail business (known as Allgas). The gas transmission company APT picked up Allgas for $521 million. As well as the regulated gas network distribution business, the Allgas deal also includes the unregulated Moura coal seam methane pipeline and rights related to the proposed Gatton to Gympie pipeline.

In total, the energy sales process has grossed more than $3.1 billion for the Government. This nest-egg goes into the Queensland Future Growth Fund once stamp duty, related sales costs and adjustments, and any relevant debt repayments are taken off.

However if customers in FRC areas believe that competition between new providers will drive down the cost of their bills they may need to think again. There are intricate links between all of the new energy providers with the Western Australian gas infrastructure giant Alinta behind the scenes with interests in all the new providers.

Alinta, a Western Australian gas infrastructure giant spent much of 2006 bidding against AGL with takeover and counter-takeover offers of each other. In August, the two companies reached a compromise to scrap their rival bids. Instead the companies merged and then demerged into separate infrastructure and energy companies via schemes of arrangement. Alinta acquired AGL's infrastructure assets and AGL acquired Alinta's energy assets.

This included a stake in APT as AGL already owns 30 per cent of APT. Alinta then acquired another 10 per cent of APT despite reservations from the market watchdog the Australian Competition and Consumer Commission (ACCC).

Origin had stayed at arms length to these inter-company manoeuvres – until now. Matters took a new turn earlier this month when Origin announced it had entered discussions with AGL to launch a $14 billion merger of the two companies. Despite approving the Powerdirect sale to AGL, this latest merger plan has the Queensland Government worried. Deputy Premier Anna Bligh has asked ACCC chairman Graeme Samuel to "take an active interest" in the merger talks. AGL chief executive Paul Anthony has brushed off her concerns by suggesting Powerdirect could easily be spun off into a stand- alone electricity company with other AGL assets.

But while the urban sector may have to deal with potential price collusion, the rural sector remains firmly in Government hands. The state-owned company Ergon currently holds the energy accounts in the Queensland rural sector. Because it is not as profitable as the urban sector, it is out of scope for July FRC.

Deputy Premier Anna Bligh told parliament last year Townsville may come in scope for FRC depending on what happens with the proposed $5 billion gas pipeline from Papua New Guinea. Led by Exxon-Mobil (with a 10 per cent stake owned by AGL), that ambitious multi-national project remains at draft stage with no firm timeline for implementation.

In the mean time, the State Government acknowledged that energy bills would remain higher in Ergon regions due to the higher costs of providing electricity into remote regions. The 600,000 Ergon customers will remain subject to the tariff set by the minister. Currently customers are on ‘fixed price tariffs’ which protects them from changes to prices in the forward market or the spot market due to factors such as drought. The uniform tariff comes at a very significant community service obligation which was nearly $400 million for 2005-06 financial year.

Rural customers will be hoping that the state will continue to subsidise their energy bills with the largesse of the future fund. Urban customers will be hoping they won’t outlast their welcome messages now in the post.