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article imageOp-Ed: Raising Australia’s power bills by 20% and getting it all wrong

By Paul Wallis     Jun 17, 2012 in World
Sydney - Australia is to have a massive increase in power bills to cover major infrastructure work. This comes as a double whammy, with the new carbon tax as part of the measure of bills charged to consumers.
Canberra is all thumbs, and the price regulator simply went with the flow. There’s a history to this mess. In the 1980s, a lot of economists and energy industry people said that Sydney would need much more power. It was a natural result of increasing population and the fact that the old generators were obviously going to hit capacity. Everyone said, “Oh, yeah, right,” and nothing was done. 30 years later the power suppliers, who also did absolutely nothing, said they needed to charge more to do what they should have done decades ago.
Meanwhile, enter the carbon tax, which is actually a pollution tax and should have been called one. Taxing carbon sounds like taxing oil, coal and all our other big ticket products. Taxing pollution sounds like taxing inefficient systems, which is the actual intent. Australian business has been crying foul, and has yet to even acknowledge that cutting their emissions (on which the tax is based) by slapping on a few new filters is an option.
The carbon tax is complex, another problem which was easily foreseeable. Payment of carbon tax is based on a measure of emissions. You pollute more, you pay more. That wasn’t actually explained at any stage of the process of trying to sell the carbon tax to the public.
The result of this stroll through ideology, bureaucratic minutiae, and tantrums has been a tax system which is at heart right and in practice likely to be quite wrong. The cost, of course, has been offloaded onto consumers and business. As usual, public and corporate policy failure has to be borne by everyone else. The hit to the consumer bottom line as a result of all this brilliance is likely to be serious for most low income people.
We now have a crusade by News Corp to try People Power and get support for discounts. The theory of market competition is to try to drive competitive pricing and therefore lower net costs.
To quote the Daily Telegraph
Many households are dreading the carbon tax, which starts on July 1, because the pace of price rises will be so rapid it will be all but impossible to contain bills by cutting consumption - despite their best efforts. Those in the eastern half of Sydney, Central Coast, Newcastle and the Hunter region will be slugged an extra 20.6 per cent on their power bills, of which almost half - 9.4 per cent - is down to the carbon tax.
The Telegraph was opposed to the carbon tax from the start, but previously they simply emphasized the business opposition to the tax, not the domino effect throughout the economy. Nor did anyone else, beyond a few mutterings about price rises. Wholesale rates for electricity for industry haven’t yet been pinned down, but the rise will be proportionate. Australian business, which traditionally suffers from high freight costs, will also find themselves paying for freight price rises.
A few anomalies which apparently didn’t occur to anyone:
A pollution tax is generally a good idea, but it’s been done very badly. It forces replacement of dangerous, high-polluting old fossils and reduces emissions accordingly. Pollution has been a problem since the Industrial Revolution, turning the world into a passive smoker. Australia contributes more than its fair share to global pollution, too.
This blanket rise in overheads and costs to consumers is not a good idea in any sense. Business overheads need to go down, not up, and even the most casual glance at consumer costs would indicate that any new revenue stream needs to be priced realistically and within the means of the revenue base to pay.
The electricity sector has got away with murder by being allowed to raise prices so much at the expense of the nation as a whole and not absorb the costs of its laziness for the last 30 years. Whose business is it?
IPART, (The Independent Pricing and Regulatory Tribunal) the independent price regulator, apparently didn’t do much more than rubber stamp a proposal which was essentially a no-options approach. This is not what a price regulator is for, and nor should the regulator be put in such a position.
The energy sector as a whole has behaved in a way which could be construed as monopolistic. By rights, it should have been held accountable for its failure to provide adequate service capacity and absorbed at least some of the costs itself to the extent of reducing the impact on the economy. Under this scenario, it gets the benefit of increased capacity at higher prices, and doesn’t even have to pay for the cost of the added capacity which generates (excuse pun) its revenue. This is more like the banking sector than the finance sector.
We actually have a National Competition policy, which so far has delivered nothing but higher prices across a range of consumer staples. Apparently, competition wasn’t in the criteria for power generation, either, so maybe the Telegraph has hit at least one nerve.
The fact remains that this is truly lousy public administration on the macro scale. The carbon tax was fatally misrepresented, the revenue angle is unclear, and the effects on both consumers and the economy are entirely negative at this point. There are no winners except a nominal effect on pollution and perhaps some useful revenue, although nobody’s been too clear on the objectives of the revenue raised by the carbon tax, either.
Ironically, it’s hard to imagine a better advertisement for solar and other types of independently generated power. Australians will always look for cheaper options. We may well wind up with a solar economy and the new capacity going begging for contracts.
Waste makes waste. It was all avoidable, but nobody went looking for solutions, just positions. Another few billion per year sails away destined for someone’s pockets at the expense of the public.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
More about Carbon tax, Australia energy prices, Macroeconomics, Consumer prices, business overheads
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