« Trying to make sense of..... | Main | Iraq: US Exit Strategy »
November 12, 2003
just get used to it
I have just come a copy of last Friday's Australian. In it there is a report by Terry Plane on energy prices in South Australia (no link). Electricity prices for consumers have risen 25% whilst domestic gas prices are due to rise by 20% next January. It's a mess.
Remember the hype? It was about all the benefits — lower prices and more
efficient and better service — of a fully privatised and competitive
system with media commentators arguing for the need to free the industry of its last vestiges of government "meddling". That was part of a package of promises. South Australia would alleviate its supply problems by entering the NEM. This would mean having access to the surplus generating capacity to be found in NSW and Victoria.Further down the track, the growing demand and the lack of generating capacity would attract investment into the State, especially to the lucrative market for power in periods of peak demand.
The message in the article about the consequences of the privatisation of the power industry by the former Olsen Liberal Government is blunt, and it shows that the mantra about more competition bringing price relief is little more than market dreaming.
"South Australia would never benefit from the national electricity market, the state's power regulator declared yesterday. ...Lew Owens said that $15 of the $71-a-megawatt-hour rate he approved could be put down to the cost of privatisation.....Mr Owens has described this (the higher energy prices) as the new order of utility prices and told consumers they should he get used to it."
The article also mentions that Stepehn Kelly the chief executive of the National Electricity Code Executive Administrator, has said that South Australia has enjoyed the biggest decline in wholesale prices of any state over the past four years. The decline had been in the order of 63%. All the evidence, he says, suggests that contract prices have come down.
So wholesale prices for electricity come down 63% and retail prices go up 25%. That looks like price gouging to me by AGL, the Sydney based utility company. They are making a killing in the SA market.
The Energy Consumers' Council agrees. They say there is a lot of fat in the current prices (about 10%) and that South Australian consumers are being overcharged.
The inference? Lew Owens, the energy regulator, has gone along with monopoly pricing in SA by AGL, whilst the Rann Labor Government has allowed it to happen. Pat Conlon, the SA Minister of State Energy, has a simple line that is endlessly repeated. The higher prices are due to the previous Liberal Government botching the privatising process.
It has nothing to do with private operators in the National Electricity Market "needing" to charge more than can be justified on the maths of the
business; or even contrary to movements in costs in order to establish a
"risk margin"?
What can be done as more and more as more and more South Australians find themselves unable to pay for this basic service? The Energy Consumers' Council says let's have a look at AGL's purchasing contracts and review the decision made by Lew Owens to approve the 25% increase in prices. It's a good place to start clawing back price increases through government intervention.
Posted by Gary Sauer-Thompson at November 12, 2003 06:47 AM
Trackback Pings
TrackBack URL for this entry:
http://www.sauer-thompson.com/mt2/mt-tb.cgi/859
Listed below are links to weblogs that reference just get used to it:
» resisting the Stoics on anger from philosophy.com
I have a deep resistance to the Stoic extirpation of the the passions in public life. I think that anger is perfectly justified. Let me give an example from this post. In South Australia the Olsen Liberal Government in fighting a state election stated ... [Read More]
Tracked on November 12, 2003 11:06 PM
Comments
I knew my friend should have sconned Olsen with that plastic bottle when she had the chance!
Posted by: dj at November 12, 2003 09:06 AM
Gary,
Lew Owens spelled it out accurately the other night on Stateline when he was being grilled fairly thoroughly. As you rightly point out overall wholesale electricity prices have come down under competitive supply. In fact Owens laid out a challenge to the critics, that if his sums were wrong by more than 6% he was prepared to resign. Given the vagaries of forward planning in business I would suggest the 6% margin for error was a fairly realistic one.
What every critic of higher household/small business(ie 'retail' consumers) power prices is not appreciating, is that the new regime was deliberately designed to stop the cross subsidy of large(ie'wholesale' consumers) to households as previously. The cheaper power is now being enjoyed by the likes of big consumers like GMH, Mitsubishi, Penrice, etc while the retail end of the market is now paying the truer costs of small end supply prices. Owens openly admitted that this was what the Keating inspired reforms were designed to do. In other words-householders don't blame me blame your Govts. Neither side of politics has been prepared to own up to this fact.
Posted by: observa at November 13, 2003 01:08 PM
>> The cheaper power is now being enjoyed by the likes of big consumers like GMH, Mitsubishi, Penrice, etc while the retail end of the market is now paying the truer costs of small end supply prices>>
I wouldn't mind if these corporate bludgers didn't receive the massive subsidies they get from both fed and state govts -- that we, the retailer pay via taxes.
It's all just one big artificial crock and we, the consumers, have been sold a huge lie in the interests of a long-discredited ideology.
Wonder how long it''ll be before some bright spark comes up with the big idea that all utilities need to be state-owned in this large country with its small population?
In the interests of efficiency > of course...
Posted by: fugitivepope at November 13, 2003 07:46 PM
fugitivepope,
As a small businessman and consumer I can live with a truly free market. I will wear the loss of a cross-subsidy from the big end of town to me in the interests of economic efficiency. This helps firms like GMH be competitive on the world stage and provides good incomes for workers in traditionally low socioeconomic areas(eg Elizabeth/Salisbury in Adelaide)
However it is one big artificial crock if I am then forced to cross subsidise large corporate cotton and rice growers with Save the Murray Levies and rationing. They pay $50/ML for water rights in normal years rising to $1500 in the recent drought. Well if they can't pay the market price all I can as a city dweller then is too bad. Welcome to the invisible hand chaps. I get a bit pissed off when the visible hand of Govts selectively comes to their aid.
It's the same with handouts to failed Companies like Ansett and its workers. Why should the consumer be screwed to pay for the entitlements of long overstuffed employees in a failing business? The bottom line safety net should be the same for all- The Dole. Nobody comes to the special aid of the small corner Deli owner driven out of business by the likes of Coles & Woolworths. Imagine a levy on groceries to pay for the 'Save the Deli Owners Rationalisation Fund'
It's the old story of I owe the bank $2000 and can't pay I've got a problem. If it's $2 million, they've got a problem.
Posted by: observa at November 14, 2003 09:48 AM