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article imageOp-Ed: Australia’s massive 70% power price surge, an inexcusable mess

By Paul Wallis     Aug 8, 2012 in World
Sydney - You have to wonder if anyone in Australian government has a clue about economics at any level. The massive increase in electricity prices we’ve seen in recent years proves that they don’t. Costs have gone berserk.
The Sydney Morning Herald quotes the national regulator:
The chairman of the Australian Energy Regulator, Andrew Reeves, told the Herald yesterday that unless the regulations which govern its decision-making process were overhauled, network operators, including state governments, will continue to overinvest in infrastructure, forcing consumers to cover the costs which the operators receive back as dividends.
''We consider consumers are paying more than necessary for a reliable supply,'' Mr Reeves said.
Let’s clarify- Everybody is paying more than is either necessary or desirable. Australia has only 22 million people. We’re a net exporter of energy. We have one of the world’s biggest hydro power generators in the Snowy Mountains. We’ve barely managed to find a use for it. I used to live in the region, and the power costs were the highest in the state, if not the nation.
Our manufacturers are having a hard enough time competing with freight costs, let alone a massive slug from energy costs. Small business does not need added costs of any kind. Hard cash is going in to paying for this farce, for no particularly good reason.
Yet our energy sector has got away with murder in terms of inefficiency. Our comatose policy makers have overlooked the incredible laxity of this sector, which was told repeatedly for 30 years that capacity would have to increase to meet demand now. It was a no-brainer of epic proportions. They did precisely nothing. The cost of upgrading is now multiples of what it would have been during that period.
Then there was “privatization mania”, where previously state-owned assets were sold off in the name of “competition and free enterprise”, our version of Maggie and Ronnie’s “let everything to hell as long as our bosses make a few bucks out of it” economics. The competition is now a cartel in all but name. Energy costs are damaging our competitiveness. The free enterprise equates to damaging free enterprise in all other sectors.
For example, another quote from SMH:
In an attack launched this week to differentiate the impact on power prices caused by the carbon tax from that caused by the states, (Prime Minister) Ms Gillard said overinvestment in transmission infrastructure - poles and wires - was the prime reason for power prices soaring by 70 per cent in NSW over the past five years.
Think about what 70% means as a real cost to households and businesses. Think how damn stupid you’d have to be to accept a 70% increase in charges for any service, let alone an essential service. This is an “efficient market”? 70% for what, exactly? A warm fuzzy feeling knowing electricity company executives won't starve?
Think also about the realities of business for other sectors. When they have to replace capital equipment and infrastructure, they can’t pass it on in massive percentages to consumers and business, who are likely to tell them to go to hell. Why is this being tolerated at all?
You’d think that electricity was previously 70% undervalued. It wasn’t. Quite the opposite, it was an accepted commercial rate, and wholesale rates were cheaper, too. Now, all of a sudden, we’re paying for exactly the same services at much higher rates, simply because nobody understands infrastructure cost management?
To explain-
If you have to replace infrastructure, you don’t actually have to go broke and send your customers broke in the process. There are other options. One of those options is doing things in a staged way, within budget, without threatening profits. The other way is the way we’re doing it, which looks like a last gasp desperate attempt at managing a non-crisis.
There should never have been any capacity issues. New capacity should have been phased in, in a sane way. Costs should have been kept bearable and within reasonable limits. Cost control isn’t some sort of unknown science, despite a global business mentality which insists that higher prices represent economic growth, which they don’t, or that bigger numbers equate to improved profits in an endless price rise environment, which they can’t.
Short answer to these ridiculous situations and those responsible- Go solar, go local DIY power generation by any means available, and tell these expensive idiots to go back to hell where they belong. You want customers, you charge rational rates or you go out of business. That’s “free enterprise” in its most uncompromising form, which is very appropriate in this case. There are no excuses for this lunacy, and no reasons to tolerate it.
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
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