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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

the great free market « Previous | |Next »
September 9, 2012

Neo-liberals say that state planners don’t know what people want. People know what people want, and entrepreneurs will invest and compete to supply those wants. If the product or service supplied is underused, useless or too expensive, it’s the entrepreneur who loses out, not the customers. That is the beauty of the free market and opening up the electricity system to competition.

In Australia in the mid-nineties State Government’s agreed to privatise their electricity public infrastructure under pressure from the then Howard Government. Privatization occurred in Victoria and South Australia.

James Meek in How We Happened to Sell Off Our Electricity in the London Review of Books makes a good point about the realities of privatising essential services such as electricity.

If you define the problem as the lights not going out... you misunderstand everything about the way the new world of electricity markets works. The ideal situation for private electricity firms is one where there is only just enough electricity to go round. Then they can charge as much as they like, and people will have to pay.

Though people think insecurity of supply means will the lights go off or not, that is not the issue. It is what happens just before the lights go off. For instance, the global electricity company takes a coal fired power station off line for "maintenance". This drives up the price of electricity, which meant more money for the global power company (eg., International Power and TRUenergy) for the other owners of coal-fired power stations. The customers pay the price.

In Australia despite the fall in wholesale electricity prices, customers have seen big increases in their electricity bills. The beneficiaries are the firms that distribute and sell the power. The inevitable next stage is for the companies that distributed electricity to merge with the companies that generated it--ie., the companies t sell customers electricity that they’ve ‘bought’ wholesale from themselves. This is ‘vertical integration’ with all its with all its potential for price-fixing and abuse of market dominance.

In Australia the international power companies have convinced the regulator and government that they have the right to be compensated for decommissioning electricity generation plants that are among the most polluting in the OECD. When they bought the Hazelwood and Yallourn power plants through the Kennet Governments privatizing process they knew that their emissions would be capped, a price paid for the right to pollute, and that a system of regulating emissions would be adopted and would affect the value of their power-plant assets.

| Posted by Gary Sauer-Thompson at 10:47 PM | | Comments (2)
Comments

Comments

There is a rethink the national electricity grid and its underlying structure.

Vertical intergation, you say? What a novel idea ... although I seem to remember ETSA was vertically integrated before it stopped being a Trust.

Like you, I have no sympathy with the spivs in the electirity industry. If they didn't know limits to their CO2 emmissions were coming, they damn well should've. (There's probably room for a class action by shareholders in there, for failure of due diligence.) I'd be quite happy if the government went for compulsory acquisition.