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screwing the customer? « Previous | |Next »
October 30, 2003

There was a story in The Australianyesterday (no link) about the cost of energy in South Australia. It states what is well known: that South Australia has the highest electricity prices of any state, due to power bills jumping 25+% since the creation of the national electricity market on January 1.

At this point the deregulators intone their old mantra. They say that deregulation is better than regulatory compulsion. But it is not a case of either or.

The shift to market competition has meant higher electricity prices for consumers in South Australia. Is this because there is not enough vigorous competition to reduce power prices? What we know is that wholsale prices have decreased whilst retail prices have increased. What stands in the middle is AGL the power retailer. It looks as if they bear some responsibility for what is going on. It also looks as if the point of a deregulated energy market is to ensure new investment and boost profits.

Let us look at the South Australia gas market, which will be deregulated and opened up to competition next year. Guess what? A competitive national gas market will have the same impact on consumers as the electricity one. The Advertiser reports that the retail price of gas is expected to increase by around 20 per cent. How come, when SA has one of the dominant sources of gas in the Cooper Basin? This competes with gas from Bass Strait on a national market.

Why not have two gas pipelines from the Cooper Basin competing against one another.?

What we can infer is that competition means increased prices for consumers. They are being sacrificed to ensure more investment.

It would appear that national competition policy is not about reducing consumer prices. It is about increasing profitability for corporations at the expense of consumers. It is the consumers who are being screwed by the coporations so they can make a good return on their capital.

So much for competitive markets delivering choice, service and price benefits to consumers. Consumers, faced with 'take it or leave it' bundled contracts, are often blamed for the problems because of their desire for airconditioners during the high summer. Ignorant consumers, it is said, should learn to consume their electricity more wisely. We should adopt sophisticated risk management tools to turn on the lights and cook the evening meal. Reduced demand would reduce the price of energy.

Those sentiments are a joke. It is the market that needs refoming.

We should be thinking in terms of monopoly profits, threatened capital strike and corporate designed supply shortages. These corporations do not care about low value consumers because they do not generate enough profits for them.

We should also be thinking in terms of passive state governments who went along with, or initiated, the flawed processes of privatisation. They have failed badly, created a mess and continue to talk about competition at the retail level being the big solution.

What I see happening is that over a 20 year period the market pressures will favour a process of consolidation, that will lead to a duopoly in the energy market. The appropriate model here is airline deregulation: it is one of market failure. We shoulld accept that the free market ideal of many buyers and sellers competing vigorously in the energy market is a fiction.

| Posted by Gary Sauer-Thompson at 7:23 AM | | Comments (2)


Prof Dick Blandy of the Electricity Consumers Council was on the ABC TV today descring why SA has the highest prices in the country. Essentially due to our heat wave air-conditioner demands in summer.Approximately 25% of our capacity is required for 5% of the year. Consumers have to pay for that privelege of course.

We got a look at a new smart meter that could alleviate much of this grid cost, by switching off air-conds on a rotational basis for short periods(15 mins every 2 hours). Electricity Ombudsman Lew Owens was against them on behalf of consumers, basically calling for business to cut its power use instead. Well of course business is prepared to pay the price. The meters would be voluntary, with discounts offered for consumers using them. The same benefits could accrue to business with timely shutdowns as well.

SA's particular power cost problem aside it was probably fair to say that power consumers Australia wide were in for some major price hikes, publicly or privately. The State Govts had generally bled their utilities as a tax milch cow, without costing in capital depreciation of aging plants. SA in particular is going through a massive period of investment in generation. Currently private investors are completing a major'apartment' development on the foreshore of Port Augusta to house workers for a 2-3yr period while the aging dinosaur Playford power station is renewed. This accommodation will essentially be paid for by rental to the workers in a tight regional accommodation market. It will then become a desirable motel, the first to be built in Port Augusta since the 70s I believe. Smart win-win by private enterprise which public servants couldn't even contemplate.

It is fair to say that when the Olsen Govt. touted privatisation of electricity as holding out cost benefits to consumers it was not telling the whole truth. What it really knew was that power prices would have to rise to reflect the new infrastructure costs required to meet burgeoning demand(as well as past goverment's neglect) Given the gun to the States heads from the Feds(Keating inspired if you recall)to increase competition or suffer funding cuts, what choice did the Olsen govt have? The truth was, these govts believed that competition would produce a lesser rise in prices than would have occurred under a continuation of govt monopoly. They just didn't have the guts to tell the electorate what they never want to hear.

Where are we now? Well we will never know whether or not ETSA would be giving us cheaper power than currently. However any of us who knew the good old days of feather-bedded employees of ETSA, SAGASCO and PMG(Telecom), laugh at the thought.

If you thought the likes of AGL and TXU are ripping us off blind then perhaps we'll let the doyen of the poor old consumer, the Rann Govt call it. They have just looked long and hard at the problem and have just decided that unfortunately their is no prospect of cheaper power in the short term(for this read the life of a power station). Exactly what they probably knew in opposition but were just as gutless in not telling us when they were busy scoring cheap political points.

Government business as usual folks! The good thing about privatised power last summer in SA was no blackouts. You just had to pay the true long term cost of power.

change 'descring' in 2nd line to 'describing'