Lessons not Learnt NSW Electricity Privatisation
by Matt ThistlethwaiteDeputy Assistant Secretary, Unions NSW
In NSW over half a century ago, the state government realised that the private sector wasn't able to deliver reliable electricity supply. It was apparent; the state was suffering repeated blackouts and prices were prohibitive. It is therefore more than a little concerning that nearly sixty years later, the NSW State Government is proposing a return to a system that has been shown not to work.
The ownership structure proposed by the government is a model that sees electricity generation and retailing controlled by the private sector whilst responsibility for distribution remains in public hands. There are a multitude of reasons why privatisation of electricity assets is not in the best interest of the community. However, there are certain key themes that appear to be resonating in the campaign against the proposed privatisation of electricity. These are issues around price, security of supply, off-shoring, environmental impact and consumer protection.
The issue of higher prices when electricity is privatised would be one which many South Australians are highly familiar with. If an average is calculated over the past decade of the yearly price of wholesale electricity the figures are stark. In South Australia where privatisation of electricity assets has occurred the price averages out to $76.36 per megawatt hour. In comparison, in NSW where electricity assets are state owned, the average yearly price of electricity per megawatt hour has been $38.22. The issue of wholesale electricity prices is particularly concerning when NSW Government reports state that “wholesale electricity costs represent about 40% of the total price of electricity”. It immediately sets the stage for a significant difference in retail prices when privatisation is introduced, and this is exactly what has occurred in practice. In the last Household Expenditure survey conducted by the Australian Bureau of Statistics, it was found that the average weekly household spending on electricity in NSW was $16.54. In comparison, the average weekly financial output on electricity for a South Australian household was $20.97.
In a similar study, the Tasmanian Government Energy Regulator staff used an established methodology that accounted for average household electricity consumption levels and the set tariff rates available from electricity retailers. The lowest rate was found in New South Wales, at 11.0 c/kWh, while the highest is in South Australia, with prices ranging up to 21.6 c/kWh.
The NSW Government has been somewhat dismissive of what this means for consumers. However, in the context of rising inflation, a housing affordability crisis and other economic downturn, the difference in price between a state like South Australia where the electricity assets are privately owned and the price in New South Wales where electricity assets are publicly owned is substantial.
It has been suggested that the antidote to rising prices is market competition. Unfortunately for the community this has not been shown to be the case. To take one example, in the electricity retail sector in Victoria, three companies have an 87% market share. There is still some equivocation as to when a new base load generator for electricity is needed, however it is generally accepted that new base load generation capacity will be required within the next decade. The NSW Government has stated that they don't want to take on the responsibility of building that new generator and therefore they need to sell a significant portion of the state's electricity assets so that private companies will invest in base load generation. This argument has several flaws. Experience shows that ownership of electricity assets by the private sector is not enough to actually get investors to initiate a new base load power station. Indeed, in Victoria, there has been no building of new base load generation since the state's electricity assets were privatised. In some ways this is understandable. What incentive is there to build more generation capacity when that action will diminish the asking price for your product by making it more readily available?
The second issue is that nowhere in the NSW State Government's proposal is there a guarantee or requirement that potential private sector owners of the state's electricity assets invest in the new base load generator that the government's own experts have noted is needed. Instead, there is an acknowledgement in notes presented to the Unsworth Energy Consultative Reference Committee that the private sector may well not invest in new base load generation capacity and instead rely on the NSW State Government to fund it. If the privatisation of the state's electricity assets was to go ahead and the state government was still forced to invest in new base load generation the government will be in a highly difficult position. It will have lost the revenue from assets that currently account for 21% of NSW total infrastructure assets, yet still need to find money for more investment.
Off-shoring is always an emotive term. In the context of the proposed privatisation of NSW electricity assets it has two applications. On a macro level off-shoring can refer to the investment of foreign companies in NSW electricity assets. The result is that the people making decision about the security of NSW electricity supply are not a part of the NSW community. They have no experience of the use of those assets from a consumer perspective. Furthermore, this foreign investment removes to an even greater degree any accountability mechanisms that existed prior to privatisation. When a company is not even listed on the Australian Stock Exchange then the opportunity for NSW consumers to purchase stock, attend annual general meetings and make requests under Australian Freedom of Information laws no longer exists.
On a more specific level, off-shoring of set groups of jobs is a product of the privatisation of electricity assets. Just last year, one company in Victoria sent over 200 electricity retail jobs to India. This has an impact upon the affected employees but also the community at large. Employees in regional areas where the electricity assets are the main employer are often forced to relocate in order to find new work. However, large scale redundancies have coincided in some Victorian towns with a substantive drop in house price. The result of this is that people are forced to remain in an area where there are minimal employment prospects and all the well publicised results of that ensue.
The other issue around off-shoring is the capacity for consumer protection mechanisms to work in countries that have no binding regulation to abide by them. This is of particular concern when billing records are sent overseas as they were by one Victorian private electricity company last year. This means the bank account details of ordinary Australians are being transferred from country to country with all the security risks this entails.
In the context of the current national debate about climate change and the declining state of the world's environment, the proposed privatisation of NSW electricity assets would only be of further detriment to both the environment and the government responsible for the sale. The current proposal includes no incentive to invest in environmentally sustainable technologies. The natural influence of market sources means that companies will invest in whatever energy source is the cheapest at the time. In comparison the Government has a recognised social responsibility, and a long term economic imperative to build new base-load generation using only zero and low emission generation. Environmental organisations have criticised the privatisation proposal for failing to review the timing and feasibility of technologies and measures available both nationally and internationally that reduce greenhouse gas emissions. A conclusion that can be drawn from this is that any new developments should wait until environmentally sustainable technologies become more readily available. In particular, there needs to be greater clarity about carbon trading schemes and whether the NSW Government plans to indemnify potential purchasers against such costs.
The NSW Government issued a media release on the 10th of December 2007 to explain their position on energy efficiency. In order to meet the NSW Government's commitment to reducing greenhouse gas emissions, emission output from existing generators will need to fall. A proposal put forth by the Business Council for Sustainable Energy suggests that a national scheme to roll out smart meters would discourage excessive use of air-conditioners and other non-essential household appliances. In considering current usage of electricity it is important to note that the projections in the NSW State Government funded Owen Report have already been superseded by the federal government ratifying Kyoto, the expected Federal Mandatory Renewable Energy Targets and other new renewable energy projects. Furthermore the data used in the Owen Report fails to adequately incorporate the impact of existing energy efficiency measures (like the Greenhouse Gas Reduction Scheme (GGAS), Building Sustainability Index (BSIX) and mandatory efficiency standards for appliances).
There are several groups of consumers who will be significantly disadvantaged by the privatisation of NSW electricity assets. Some remedies for these consumers regardless of whether the privatisation proposal goes ahead have been discussed whilst others haven't. The experience in Victoria has been the impacts of electricity pricing disproportionately affect low income earners. Indeed in March 2004 the Victorian Council of Social Services warned that 1 in 4 households risked disconnection of power when the state became fully deregulated. Furthermore a South Australian study found that whilst electricity prices had risen significantly above the CPI, Commonwealth assistance was indexed to the CPI, meaning that those on Centrelink benefits were being further marginalised. It is essential that the importance of access issues around publicly owned electricity is acknowledged. Some attention has been paid to how the most vulnerable in society can be assisted with the price increases that have been seen to occur with privatisation.
However, there are many families, particularly in the current economic climate, who would find many of the hidden fees and charges associated with electricity supply difficult to meet. One example of this is the Retailer of Last Resort scheme which charges consumers automatically for changing their electricity supplier if their current supplier is unable to continue business. Removing this fee is essential so that access to continuous electricity supply is for all and not just those who can afford it. Clearly, privatisation has had some highly detrimental effects in South Australia and Victoria. These effects include increases in price, failure to guarantee electricity supply, off-shoring of jobs and customer information, loss of accountability by electricity providers, no encouragement to pursue best environmental practice and loss of consumer protections. It is for these reasons that the people of NSW are overwhelmingly opposed to the privatisation of the state's electricity assets.
Source: Australian Options, Issue 52, Autumn 2008, pp. 16-18.