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February 19, 2003
I'm off to the National Press Club to hear Premier Mike Rann (SA) and Tim Flannery on Water Conservation, Drought and the Murray so postings are light. I will post on it latter.
I did want to mention this about the creation of a national electricity market. I have mentioned how it is a flop from the SA experience. Well the Australian Financial Review ran a story on Monday (subscription required, 17 FEb. p. 71) by Conor Wynn about it being a flop in NSW.
He says:
'Regulators and politiciains have bungled the introduction of full retail competition (FRC). What's the evidence? There are fewer retailers, very little switching and limited price competition.'
He goes on to ask:
'So whats the answer? Paradoxically, prices need to rise much higher before they can fall (through competition)....But there is a nasty problem with this approach. The short-term political fallout would be huge.'
So its just not a SA problem.
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Gary,
Have you got any handle on the extent to which power prices in SA have needed to rise in order to pay for the long term capital costs of adequate power generation in this state?
I know it's popular to blame all the increases on privatisation, but this appears to be an over-simplification.
It is apparent that increasing consumer demand has been met adequately this summer by private providers, if the lack of black-outs is any guide. One tick for privatisation.
Was it the case that State govts.(of both persuasions) had used the states utilities as a govt. milch cow for revenue purposes, by living off our capital. They simply duck-shoved the long term costs onto the new private providers, and now have a convenient scape-goat for their prior political gutlessness.
For instance, I believe the Port Augusta power station is about to be significantly refurbished, the need for which has not just happened in the short period of privatisation. I believe a similar situation now exists with our water/sewerage utilities, with some horrendous pipe replacement sums being bandied around.
Question is, to what extent are current and future utility price rises the result of monopoly pricing power, or previous public incompetence?