From redeveloping Sydney’s network infrastructure to reforming energy regulation, EnergyAustralia managing director, George Maltabarow talks with Energy Source and Distribution about transforming the industry.
When he’s not running Australia’s oldest and largest energy retailer, EnergyAustralia managing director, George Maltabarow has been leading a progressive reform of the energy industry’s most important policies. Influencing energy regulation for the past three decades, Mr Maltabarow has helped introduce industry corporatisation and liberalised state and national markets. As EnergyAustralia pours $1.4 billion a year into infrastructure development for the Sydney and Newcastle electricity networks, the managing director maintains the pressure to change industry regulation and policy.
“I’ve worked very hard to get the right regulatory structure, to get standards in place which, in other words, guided the regulators so we didn’t have regulators setting standards,” Mr Maltabarow explained to Energy Source & Distribution from his Sydney office.
“When IPART was regulating the New South Wales industry, we actually had the first determinations to reverse a long standing trend of just screwing prices down and not spending much on capital. We persuaded the regulator you can’t do that. Subsequently, we got the regulator to focus on the long term nature of the industry and capital and we’ve also been successful now with the Australian Energy Regulator, who also recognised the need for networks.”
The topography of EnergyAustralia’s Sydney network and its many waterways, the oldest in Australia, makes it technically complicated to redevelop. The sense of fulfilment Mr Maltabarow feels as raw earth is broken open for the installation of a new power line is matched by the satisfaction of ripping down and replacing regulatory barriers which prevent investment from occuring.
“I did spend a lot of time lobbying for its establishment in a way which enabled us to plan effectively and fund our program.
“Putting all that together is just something which gives me a bit of satisfaction,” he admits.
Recently elected to the Energy Supply Association of Australia board, Mr Maltabarow is the current president of the Electrical and IT Foundation at Sydney University and immediate past chairman of the Energy Networks Association. Joining EnergyAustralia as chief financial officer in February 1999, he became network general manager before taking on the role of managing director in 2005.
As a newly elected managing director, he made an immediate impact through the successful negotiation for a retail partnership with International Power to sell electricity and gas in Victoria and South Australia. In less than three years, the $25 million investment was sold for over $200 million.
“That was a very successful venture. It was just a great thing to be part of a really successful partnership. We had really good partners with International Power and the whole thing worked really well. What was really interesting was that we built it from the ground up. We built a solid business which International Power now runs. That was something I take a bit of pride in.”
As a former executive director of NSW Treasury focusing on microeconomic reform and deputy chairman of NSW Treasury Corporation, Mr Maltabarow knows the intricacies of New South Wales’ energy financial policy. Current NSW Treasurer, Eric Roozendaal announced in February that the retail electricity and Gentrader transactions will take place in the middle of the year, delaying the progress of energy reform.
“The difficulties are, and I don’t think this is any secret, the difficulties the government is facing is because in a political sense they can’t sell the physical asset, they’ve got to come up with a contractual solution, the so-called Gentrader model and the contracting rights,” Mr Maltabarow says.
“In principle that’s fine. It’s better than selling retail on its own but it’s a difficult thing to do. I think the development of these contracts is basically taking longer than people expected and that’s lead to some delays in the sale.”
Delays have become all too common for the industry, with the threat of an emissions trading scheme still in debate and specific targets from Copenhagen finding little impetus. While Mr Maltabarow didn’t expect much closure to occur from last year’s climate change conference, he does expect some form of internationally traded carbon will eventually be in place.
“It will take some time and I think in Australia you wouldn’t get too excited about the fact we don’t have a CPRS. In the beginning, I think that will come if you start building the roots, if you like, the elements in this, which is what the government strategy was anyway because no one thought you were going to use CPRS to promote renewables.
“At $30 a tonne you’ve got to say to yourself, what difference would $30 a tonne have made? And the answer is, not much. So in a practical sense the delay of CPRS is not all that important. The price signal doesn’t change anything. You’ve got to have a whole lot of other things in place before the price signal becomes effective.”
Heavily involved in national market regulation, the former ENA chairman is satisfied with the current state of competition in the Australian market and is not concerned that vertical integration of existing companies may make the market uncompetitive.
“I think the idea of more small retailers entering the wholesale market and somehow improving competition is just not supported by the facts. You only have to look at what happened to Jack Green recently. Small standalone retailers cannot survive with the market design and I think the market design has stood us very well. It’s basically one of the most competitive markets in the world I think.
“If you look at the US and other parts of Europe, I think Australia is just an outstanding model. I think market design basically pushes retailers and generators together because, fundamentally, economics of the industry are such that you can only manage risk if you put those elements together. And you just have economic forces driving this sort of vertical integration.
“I think the long-term interests of the industry are served by that. I mean my own retailer, which has been very successful, I recognise its future as a standalone is very limited. The government is doing the right thing, at least in principle, in selling it so that some other buyer can aggregate our retail business with the generation sector.”
Concerns raised by energy users regarding energy pricing strategies and market dominance are overstated, Mr Maltabarow believes.
“We have a pretty robust wholesale market where buyers bid from the market. We (EnergyAustralia) don’t have our own generation and we’ve been very successful in buying our own hedges. Now I think there’s a limit to the ability of hedging strategies to very closely add to your load and in the end retailing is not so much about getting customers, it’s about keeping your customers happy and customer service. And in the future new products will become important, but (in) the financial sense retailing is all about the wholesale part of the business and if you’ve got physical hedges through generation, physical hedges are a much better way of matching your load than financial instruments.”
While Victoria receives national attention for its AMI roll out, EnergyAustralia has already layed the groundwork for increased energy efficiency by deploying and mobilising smart grid technology.
“We pretty much pioneered the customer side of smart metering. We put 400,000 first generation meters in and (we are) the first utility to build a communications network which enables the next generation of so-called communicating meters. We’ve pioneered time-of-use, we’ve got in the excess of 200,000 customers being billed on a time-of-use basis. And I think time-of-use, basically, will ultimately force demand-side participation because electricity is a product whose price, in terms of the cost of production, varies for every hour of the day.
“Enormous amounts of capital are put in place, both in distribution and in generation, for probably a couple of days a year. We’ve got billions of capital tied literally for less than 100 hours. So if you get the ability for demand side response through prices in place, ultimately you will get a much better outcome for the industry.”
Analytical and precise when discussing regulatory determination, Mr Maltabarow has a soft spot for important social issues. Electricity’s importance to human activity and the many risks associated with power supply impressed on Mr Maltabarow the need for reliable power.
“I’ve always had an interest in social outcomes. Energy is an industry that touches all parts of the economy and all parts of society and it does have a lot of social implications and it (is) something which is, I suppose you could say, socially useful. I find (it) interesting because I think you are contributing to good outcomes,” he says.
“These days so many things depend on electricity it just underpins just about every activity you can think of.”
In 2008, EnergyAustralia was named Best Performing Company for the second year in a row as part of the sixth Corporate Responsibility Index.
“(The Index) deals with environmental and social outcomes, it’s a balanced score card of issues, not just the bottom line, but it’s a whole range of outcomes and indexes that’s independently audited. I’m pretty happy that we’ve pursued that for its own sake, not just because it’s the bottom line, and we’ve been very successful.”
With the majority of New South Wales’ energy coming from black coal power stations, EnergyAustralia has tried to become a major source of green power.
“(Coal is) a fact of life and as a major retailer you cant get away from that. Renewables certainly have an important place, but there are limits. Photovoltaics are very expensive but politically popular. They don’t get you very far in terms of where you’ve got to go. Clean coal, from a technological sense, I don’t have a problem with capturing the carbon, the issue is what you’re going to do with it. Where are you are going to put billions of tonnes of CO2?
“You need to put everything on the table because the size of the problem is so big. All these technologies are going to have their place, including nuclear. I just can’t believe that (we won’t use nuclear).”
With so much activity and development within the energy industry in Australia, it can be easy to lose track of the critical issue of industry training. Looking at the numbers, Mr Maltabarow is concerned about the future availability of engineers.
“I think there’s a huge concern. There’s been a number of studies done which have looked at the requirement for electrical engineers and looked at the output of schools and it’s a huge mismatch and getting worse. A lot of the high schools don’t even offer advanced math which means, for one reason or another, students are not choosing electrical engineering.
“If you need technologists to protect smart grids and all that kind of stuff, we need IT and electrical specialists and were not getting them.”
In response, EnergyAustralia is building a training centre at Silverwater which Mr Maltabarow expects to be the “best vocational training centre in the country”. “We’ve got a $25 million grant from the Commonwealth Government which recognises this is a useful initiative. Even with that I’m actually quite pessimistic about the number of engineers. That’s a huge challenge for the industry,” he says.
With a background in engineering and finances, Mr Maltabarow has climbed what could be seen as a dream career progression through independent, industry and government-owned corporations. As EnergyAustralia continues to expand, Mr Maltabarow will remain a significant force of industry regulation and innovation. However, the managing director admits he never intended to become a catalyst for industry change.
“I don’t think I ever set out to map out a career, it’s just a question of one thing led to something else and I basically always pursued pretty much what I was interested in. I don’t think I ever had a grand plan, I was just lucky in the sense that I was able to pursue a broader interest.”