Stephen. Thanks for the article. I suppose it is only fair that any distribution network installed to handle peaks is paid for by people consuming at the peak. But much of the distribution network is built to make electricity 'available' regardless of whether you not you use it - much like a phone line. A good example is that many people with solar panels use the network more as a firming service than a net transporter of electricity. In these latter cases I can really see the merits of a fixed 'availability' charge.

Do we know if people would choose to pay more for gold-plating, or prefer cheaper but rationed electricity?

As a neither rich nor poor person, I would prefer to pay more for a gold-plated system that could cope with any demand. I installed air-conditioning last year because it seemed that the heat waves are getting harder to bear, so that's when I'll want to use it. I don't see why the less well off should be shut out of air-conditioning during heat waves, because of price rationing.

Gold-plate the system, give a 25% discount on power bills to anyone wih a health card, and let the rest of us pay the cost.

I've got an idea.

How about people are charged a connection fee relative to their peak demand? Then the people who create the need for transmission upgrades will pay for it and those that don't won't.

Markets work efficiently with information and alternatives - the electricity sector has neither. The distributors themselves can't tell you how loaded the grid they manage is at any meaningful granular level. If the price of electricity hit the cost reflective peak price, how would a consumer be informed to change their behaviour and how much of their consumption at that time is actually discretionary?

This concept applies to any natural monopoly network. The most obvious being roads - yet while much is discussed for road pricing, the policy debate recognises that to price road use while not providing a mechanism to avoid the charge is simply a tax. That is, it is not accepted that the implicit costs of congestion can be managed by explicit pricing as people can choose to avoid the congestion but not avoid the charge.

However, for electricity the congestion can not be avoided - consuming earlier or later is difficult or impossible and after using gas for heating, cooking and PV to supplement daytime consumption, there isn't really an alternative (a la public transport for roads). Worse still, for electricity there is a charge - the flat infrastructure costs in the retail electricity price. A pricing factor that causes the regressive outcome with low income households subsidising high income ones.

The price elasticity for medium and high income households is just too low to expect pricing to signal collective behavioural change to avoiding building infrastructure, the same applies for much of the commercial use and price sensitive industrial use already has direct financial signals.

While it may address social equity considerations to have some form of tiered and ultimately progressive infrastructure use charges in electricity pricing, no market mechanism will work if there is nothing to buy.

The term "gold plating" is being bandied about by politicians but I wonder what it means. Stronger electricity ties to cater for increasing demand would make sense and is what electricity suppliers have always done. It is especially relevant now with increasing urban density as high rise apartments replace single dwellings. When I was involved in system planning the load was projected forward 20 years and power station siting and grid design was done to provide that load and at a very low cost to consumers. No one in ten years time is going to say"we should have built a smaller transmission line". Peak load limitations have never been about transmission but about generation capacity and peak load was always supplied by a mixture of the least efficient machines and peaking plant such as gas turbines. A lot of the so-called gold plating is in changing transformers to prevent saturation due to solar generation distorting the distribution grid.
If anyone can enlighten me with specific examples of "gold-plating " I would be grateful .

I am an Engineer and own a specialist consulting firm. Among other things I ran a survey of 100,000 poles in the SA distribution Network and 128,000 in SE Queensland. The knowledge is dated but failing poles from 15 years ago are still there and still a risk to the public. I buy mid sized power supplies from privatised distributors. They charge augmentation fees to minimise the extra capital they have to provide to maximise their rent. They then do not actually augment. They are all monopolies run by private firms who bought the right to collect a rent on the asset in return for a discounted NPV of the revenue stream. If they are forced to invest capital they expect more rent. I have assessed the condition of peaking power plants. One of the largest Australian energy companies is quite open about the coup they had achieved by hiving off base load power to a foreign firm while keeping a smaller peaking plant that at 1/4 of the size generates 4 x the net income after cost of generation due to their capacity to withhold supply and then after manipulating the market to bid in at multiples of the generation cost. They have spent far more on infrastructure for market management than fixing their generators. Just now they have been forced to fix the generating infrastructure as it is near failure. Transfer pricing is used to manipulate capital figures reported. All 'legitimate. I bid for the management of that. The process of managing this using bodies like ESCOSA relies on an accounting Audit to keep them honest. $250 per household by using smart meters- "tell 'em they're dreamin' " to quote a man who lived under a transmission line. The underlying process is broken. Look to NZ - there with smaller authorities and more there seems to be real competition from privatisation. I have just bought 2 services one North Island and one south island. In both cases fast efficient and 30% and 50% of the price in Australia for the service and delivered in 6 weeks not 10 months.

I agree with the author that providing a true pricing schedule, that acknowledges the variable costs and earnings would be conductive to better investment and management decisions. The greater use of power storage options are also needed, and the use of community grids. This requires policy changes from regulators to occur. Monopolized energy markets are not given incentive to open access for distributed generation and storage options. Batteries are one way to balance loads and hydrogen production is another and pumped hydro where available. In Britain we see vested interest calling for more subsidies for maintaining traditional coal and nuclear power, allowing them to stay running when wind and solar power are selling at lower cost. At some point, distributed generation and energy storage makes baseline power obsolete and redundant. The savings from renewable and distributed power are seen beyond the spot price of wholesale electricity as calculated in this report: http://www.renewablesinternational.net/renewables-payback-7-billion-euros-in-2011/150/537/56285/