Tasmanian Times

Economy

Politics and power wars

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‘If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would.’

And so the electricity debate unfolds in Tasmania – a world of its own, where everything is nonsense.

Tasmania is jumping on the bandwagon of selling the old neo-liberal mantra that privatisation leads to cheaper services, the market regulates through competition and private enterprise is much better placed to deliver services efficiently.’

This all sounds so familiar and it is no surprise that this issue is being raised at a time when the federal governments Energy Minister, Martin Ferguson is calling on the states to privatise energy claiming that the draft energy white paper has shown that the power industry needs massive investment, and continued government ownership of electricity generation assets makes it more difficult to attract new investment. (http://www.abc.net.au/news/2011-12-13/government-pushes-states-to-privatise-power/3727966)

This has also been backed by the Coalitions energy spokesman, Ian MacFarlane who stated that his party would forcefully encourage the states to privatise their electricity networks. (http://www.smh.com.au/opinion/political-news/coalition-split-over-energy-price-rises-20120809-23×64.html#ixzz3qIIpXc9J)

Even more curious is that the Greens are leading the charge to remove government participation in the energy sector while claiming the moral high ground that their aim (essentially stripping the governments’ role in retail sale and wholesale distribution) is a progressive position which will ensure Hydro Tasmania will be protected from privatisation under a liberal government in the future.

For all those somewhat gobsmacked at the absurdity of this notion, please forgive my cynicism as I and many other Tasmanians have become increasingly desensitised to the neo-liberal politics of the Tasmanian Greens; specifically Ministers Nick McKim and Cassy O’Conner who have promoted a vast array of austerity measures on the state including proposals to close smaller schools, public housing privatisation and back-flipping on their election promise to not sell the states betting agency (Tote). Now we are seeing a new side to the Greens, one that wants to remove the government’s regulatory role within the states energy sector.

There is an argument for allowing competition into the market but the Greens energy proposal removes government ability to regulate or intervene in the market. Under this system the costs to consumers become completely dependant on market forces.

Kim Booth backs this assertion when he states ‘The Greens position represents a fundamental shift in the way power prices are set in Tasmania, moving from a regulated model to a market-based model delivering greater competition at both the retail and wholesale levels.’ (http://mps.tas.greens.org.au/2012/08/greens-unveil-21st-century-energy-vision/)

The Greens plan to remove Hyrdro’s trading capacity also further removes any government input over costs to the public, leaving customers entirely susceptible to market dictated costs. (http://mps.tas.greens.org.au/wp-content/uploads/2012/08/Tas-Greens-Response-Energy-Review.pdf)

Tony Reidy from the Council of Social Service (TascCOSS) has rightly questioned whether more choice in the market will automatically lead to lower power prices. (http://www.abc.net.au/news/2012-08-17/greens-to-back-power-revamp/4205014)

A paper on privatisation of energy in Victoria was written by Professor Sharon Beder and Damien Cahill of the University of Wollongong, titled ‘Neo-liberal think tanks and neo-liberal restructuring: Learning the lessons from Project Victoria and the privatisation of Victoria’s electricity industry’ (http://www.uow.edu.au/~sharonb/ProjVictoria.html)

The paper found that Victoria’s energy privatisation lead to initially lead to low cost power it was also accompanied by reductions in the workforce, maintenance was cut back and the state faced a number of blackouts due to equipment breakdowns. (http://www.uow.edu.au/~sharonb/ProjVictoria.html)

2000-2001 saw the introduction of retail deregulation which lead to a 60% increase in the price of electricity. The government set safety net price caps to avoid the political implications of these increases – this lead a number of retailers to seek ways of getting around price caps by increasing off-peak electricity rates by 175% and decreasing peak rates to ensure average increases met with price caps. (http://www.uow.edu.au/~sharonb/ProjVictoria.html)

Professor Beder also completed a submission for the Owen Inquiry into Electricity Supply in NSW in 2007. Beder stated; ‘The supposed inefficiency of publicly-owned electricity providers has been shown to be unfounded rhetoric. It is belied by the cumulative evidence of one hundred years of electricity provision all over the world (see Power Play: The Struggle to Control the World’s Electricity). Publicly-owned electricity enterprises have consistently provided electricity at no greater cost than privately-owned enterprises and often for prices that were far less than those charged by private companies. When Victoria and South Australia privatised their electricity prices increased and service reliability declined. It is no accident that South Australia and Victoria subsequently had the highest residential prices of all the Eastern states. Between 1994 and 2002 residential rates in SA increased by forty percent and householders now pay more for their electricity than anywhere else in Australia.’

Professor Beder goes on to discuss how the costs of privatised power increased in Victoria and South Australia during these periods but this did not correlate to the state owned energy sector in New South Wales which saw a fall in power costs. (http://theconversation.edu.au/state-of-nsw-weighing-the-cost-of-the-privatisation-of-power-312)

Although the Greens propose the continued state ownership of Hydro, there is ample evidence showing that the removal of government from the retail sector does not work.

A clear example is the banking sector in Australia which has raised interest rates above levels recommended by the reserve bank on numerous occasions over the past years. Such moves have been attacked by Government, but the fact is that the government is powerless to help consumers.

Had the government kept the Commonwealth bank in public ownership, the state owned bank as one of the four major banks would set rates at recommended levels and competition would force the private providers to keep their rates at or below increase recommendations.

This issue also raises the question of the Greens commitment to reform – is it genuine or just smoke and mirrors? If the Greens were serious about reforming the energy sector and seeing a massive increase in renewable energy, wouldn’t it be easier to achieve their aims by working with the state-owned industry under the stewardship of a government they themselves hold cabinet positions in? It would be easier to promote the infrastructure needed with a state owned industry under the budget of a state department than working with a private company whose primary motivation is the bottom dollar and short term gain from not moving away from a carbon based economy.

Another issue highlighting this point is the Greens support for the privitisation of Tote. Besides being a betrayal to the Tasmanian people, this move makes one question the Greens credibility on gambling reform. Surely it is easier to work on reform with a state-owned gambling industry than to work against a private company which is likely to run a savage campaign against any government attempting reform. This has already been seen in Australia when Julia Gillard pulled the plug on her deal with MP Andrew Wilkie after the gaming industry targeted NSW Labor MP’s in marginal seats.

The simple fact of the matter is that government owned industry has one primary goal, the provision of service to the people. When privatisation occurs the primary focus changes from provision of service to increasing earnings, the customer satisfaction takes a backseat to increasing profit margins and keeping shareholders happy.

The Greens have stated that their plan gives Tasmanians a choice of provider but this is not the case for those who want to stay with a state owned electricity provider and not end up in the situation of other privatised states across Australia, which have seen increases in costs and decreases in provision of service.

Equally the Greens and the Tasmanian government need to realise that government assets are owned by the Tasmanian people, not whichever political party happens to be in for that parliamentary term. It is wrong that governments such as Tasmania’s can take it upon themselves to sell our assets without public consultation or public support. Any attempt to sell a state industry should be an informed debate with the public holding the final say through a plebiscite at the ballot box.

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13 Comments

13 Comments

  1. Liam Gash

    September 5, 2012 at 5:25 pm

    I’m sorry that some of your readers can’t see the difference between selling potatoes and selling electricity. [We really should put more money into education.] There are three major differences: one is that its an essential service; another is that its a natural monopoly, and third, if we sell assets like Hydro we no longer have any control over what it does. Yes, there is a national electricity market but we don’t want two hyrdro schemes or two wind farms next to each other competing for our business. This is yet another example of Tas Green parliamentarians thumbing their noses at the principles on which their party was founded. They have become a pale green growth on the Labor caucus.

  2. Shaun

    August 29, 2012 at 12:12 am

    #11 Given that “competition” has pushed prices up, not down, elsewhere I really can’t see the point in it.

    Prior to the various industry reforms, Australia had the third cheapest electricity in the OECD and Tasmania was by far the cheapest in Australia. Since then, with the introduction of formalised competition, prices have soared and we are no longer competitive.

    It is worth noting that there always was competition for about 80% of the total load anyway, and that much of this focus has actually been lost (hence the price rises).

    The major industrial load always has had intense competition between states and countries. At its’ peak, Tasmania held 23% of the Australian market.

    Water heating (historically about half of residential power use) has always competed against gas and more recently solar energy.

    Space heating has always been a highly competitive market, and it is only recently (1990’s) that electricity has gained a significant share. Prior to that wood dominated (1980’s and 90’s) and prior to that it was oil (1960’s and 70’s). It wasn’t that long ago that we were all being bombarded with saturation advertising for HydroHeat.

    So about 80% of the load always was subject to competition against other locations or other fuels. What has changed however is that with the reforms, this focus has been lost. There is no longer competition against other regions or between fuels (given that the big electricity retailers are primarily gas companies anyway).

    All we have now is limited competition between retailers, which is far less effective than what we had before. Origin (for example) simply isn’t going to argue the benefits of electricity or price aggressively when they also sell and actually produce natural gas and LPG as well. Likewise the others are much the same.

    Go back 20 years and we had a virtual war over heating in Tasmania. The wood heater lobby and 3 manufacturers on one side, the HEC on the other, and the privately owned monopoly gas supplier, the Gas Corporation of Tasmania, having a go as well.

    But in 2012 there’s basically no such thing apart from Tas Gas trying to sign new customers. There’s nobody really pushing electricity amidst the reforms and looming competition and nobody pushing LPG now that there actually is competition in that industry. Meanwhile both electricity and LPG prices have soared well above CPI or average wages rises.

    All of this really comes down to scale. Tasmania is too small for even one power generator to operate efficiently. Likewise we are far too small for one LPG company to be efficient. No prizes for guessing what happens when competition is introduced – prices go up to offset the loss of economies of scale.

    Retail works a bit better, since the scale can be retained assuming we’re talking about national retailers and not a local one. Enter Origin, AGL and TRU (all of which are already active in Tasmania in some form).

  3. lmxly

    August 27, 2012 at 8:42 pm

    The Greens are not advocating privatisation of the Hydro, as I read it; rather suggesting a rather cumbersome mechanism to introduce competition into a monopoly. I don’t think there is anything too outrageous in this suggestion from an economic point of view; since monopolies have the capacity to set whatever prices they desire, in the absence of competition, which usually results in increasing disadvantage to consumers.
    Can #5 suggest an alternative strategy to reduce electricity prices to consumers, if ‘a bit of healthy competition’ is derisively stupid, as s/he implies?

  4. john Hayward

    August 27, 2012 at 3:28 pm

    As a rule, privatisations around the world usually lead to higher prices for the services affected.

    In Tassie, you have to add in the factors of rampant cronyism, a notoriously malleable regulatory system, and traditional incompetence.

    It probably would be more accurate to describe the industry sold as being given as a hostage.

    John Hayward

  5. Mel Barnes

    August 27, 2012 at 1:41 pm

    Great article Matt. I’m gobsmacked that the Greens are promoting the simplistic idea that all we need is “a bit of healthy competition” and our energy bills will magically fall.

    As much as they like to paint the alternative as “last century thinking”, the promotion of neoliberal ideas is actually very old and tired. We’ve heard it all before from Labor and Liberal and it has never ended well.

    I haven’t heard a word about what ordinary Greens members think about this. Privatisation will end up hurting the most vulnerable people in society, something that every Greens member should be worried about.

    Is there anyone thinking critically about where the Greens reps are leading the party? Are there any Greens members willing to debate their leaders on this?

  6. mark

    August 27, 2012 at 3:01 am

    I’m waiting for the day when the Hydro is sold off to Singapore, so we can essentially be taxed by stealth by a foreign government. Oh wait, Basslink, we already are!

  7. Mark

    August 26, 2012 at 2:21 pm

    #5, the only link is historical. Electricity, roads, rail, dams etc all require huge investment for low returns and governments traditionally provided them for society. Now that the infrastructure is largely in place, private corporations and governments see an easy dollar as returns on investment become visible. The only problem I see with such “asset” sales is that the “liabilities” should form part of the deal. However, in electricity, forestry etc we see private corporations aren’t willing to own the liabilities so the government retains the costs and sells the income…go figure that logic…

  8. Russell

    August 26, 2012 at 2:07 pm

    Re #5
    These public utilities are supposed to make money for us by selling their product elsewhere as well so that we, the owners, can share the benefits and have cheaper energy. The private companies you talk of don’t pay us any dividends and minimise their tax liabilities as much as possible.

  9. Gordon Bradbury

    August 26, 2012 at 1:39 pm

    Curious how we trust and accept private companies to supply us with food, housing, clothing, petrol, gas, medicines, etc. but not electricity. Most of these other commodities are higher on Maslows hierarchy than electricity. So what is it about electricity that makes it so special? Why must the politicians provide us with electricity and not food? Sorry but I’m stuggling to find the logic here.

  10. Isla MacGregor

    August 26, 2012 at 12:44 pm

    The Greens – the Anti Public Good Services Party – who really are becoming more and more ideologically bankrupt.

    Bring on the Independents.

  11. Russell

    August 26, 2012 at 12:33 pm

    “Equally the Greens and the Tasmanian government need to realise that government assets are owned by the Tasmanian people, not whichever political party happens to be in for that parliamentary term. It is wrong that governments such as Tasmania’s can take it upon themselves to sell our assets without public consultation or public support. Any attempt to sell a state industry should be an informed debate with the public holding the final say through a plebiscite at the ballot box.”

    No, a plebiscite on the sale of ANY public asset should be held SEPARATE to any election because both the Libs and Labs would sell the house from under you feet given the chance to make a quick quid from it.

  12. phill Parsons

    August 26, 2012 at 11:41 am

    A plebiscite is not legally required.

    Competetion brings another thinfg to the market place, the entity created. If a public company its shares may be treaded. Both public and private can be bought and sold. Soon enough the difference between local and State government will be so reduced telling the difference will be difficult.

  13. A.K.

    August 26, 2012 at 10:57 am

    Throw out the incumbent political system and introduce referendum style government utilising on line forum discussions and voting, so the people have an actual say in their state. There is no difference between any of the parties in this state and Aus, they are all run by low intellect clones who lie, deceive and don’t have a clue about anything. Will the people ever wake up and introduce a political system which represents them and not the empty headed ideological elite, maybe after the state is bankrupt by these fools and their equally incompetent senior bureaucracy.

    The only direction for this century with regard to power supplies, is local solar and wind production dropping costs by more than 60% initially and over 90% within a couple of years. This not only blackout proofs the state, but ensures stable prices, stops inflation and puts power generation and its economics in the hands of the owners, the people.

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