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November 12, 2003
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.
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I knew my friend should have sconned Olsen with that plastic bottle when she had the chance!