Electricity privatisation: how the public will pay

January 26, 2008

Professor Sharon Beder, a research fellow at the University of Wollongong, prepared a submission on behalf of Unions NSW to the Ownen Inquiry that makes a powerful case against Premier Morris Iemma's government's proposed energy privatisation.

Beder, author of Power Play, which analyses electricity privatisation around the world identifies a number of arguments against privatisation. These include cost, reliability and environmental considerations.

The submission argues that "competition and efficiency are not ends in themselves; they are means to an end, and they are not always the best means".

The submission questions the assumed need for further baseload electricity generation in the first place, arguing that "energy efficient options and measures in each sector of the NSW economy need to be fully explored". If further baseload generation is required, it should be "through public investment rather than private investment".

Beder debunks the myth that the state's credit rating is at risk by keeping the industry in public hands, even if it requires the government going into debt in order to invest in infrastructure. That's because this infrastructure "generates income and the NSW government is able to support the additional debt involved".


The submission fires a salvo at the unreliability of private investment to provide power generation in a "timely and affordable manner", citing the tendency for price manipulation by private companies when generation capacity is low and a reluctance to increase capacity (and thereby lower prices) for energy users.

It cites the experiences in both Victoria and South Australia, where power industry privatisation led to higher prices for households and industry and resulted in increased blackouts through lack of critical infrastructure maintenance.

Avoiding energy shortages is an advantage of leaving the power industry in public hands, because it is "not restrained by a single company's commercial concerns". Furthermore, the government "can locate power plants to suit transmission requirements and use the most environmentally sound technology to build them".

The contribution of power stations to greenhouse gas emissions is further reason why they should not be placed in private hands. Governments are better placed to "research and develop power stations that utilise emerging technologies that have potential to reduce greenhouse gas emissions such as hot rock technology".

The submission also draws on a World Bank study of 61 privatised electricity companies in 18 countries. This study found that profitability rose an average of 45% — "usually achieved at the expense of workers and consumers". In South Australia, prices "increased by 40 per cent between 1994 and 2002, and householders now pay more for their electricity than anywhere else in Australia". In Victoria, there was a 32% increase in blackouts between 1995, when the power industry was privatised, and 1999.

The submission also argues that competition inevitably results in mergers and acquisitions (citing AGL's failed attempt to merge with Origin Energy in early 2007). These increase "horizontal and vertical integration" and private monopolisation of the energy market by powerful transnational energy conglomerates. Such integration has allowed for the manipulation of wholesale prices, exposing energy users to fluctuations in prices.

Manipulating prices

Private energy generating corporations can also manipulate supply and demand to maximise profits, rather than encourage energy efficiency.

Privatisation will also make it more difficult to regulate prices through mechanisms such as the NSW's Electricity Tariff Equalisation Fund. As part of the process towards privatisation, the Owen Report recommended removing domestic price regulation in 2010 — a recommendation that the Iemma government was pressured to reject in December.

In spite of this, however, according to the Unions NSW submission, the NSW Independent Pricing and Regulation Tribunal (a body set up in 1992 to oversee regulation in the water, gas, electricity and public transport industries) decided in June 2007 to raise electricity prices over the next three years to make way for a privatised market, in order to "reduce customers' reliance on regulated prices and facilitate retail competition, including the potential for new mass market retailers".

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