BY THE time this column appears much water may have passed under the bridge of our energy security, electricity supply and prices debate, but at the time of writing I am struck by one particular aspect of it, namely the collapse of the political consensus that held sway over the last 20 years or so that privatisation of the electricity retail market would lead to lower prices.
And a very good thing too, for evidence shows that privatisation leads to price gouging and deterioration of service levels, as so clearly demonstrated by what has happened to vocational education, child care, job centres, Sydney airport, and many other services. With regards to electricity pricing, this aspect of neo-liberal deregulated laissez-faire capitalism has elements of the Emperor’s New Clothes about it, and though thankfully some are now seeing through this myth Malcolm Turnbull, Josh Frydenberg & Co fail to see it, unfortunately. They have focussed solely on supply augmentation, with part-solutions such as Snowy Hydro 2.0, which will be beset with problematic issues, all they can do is call for gas companies, and the state governments that regulate drilling, to produce more gas, which can only mean coal seam gas, produced by fracking, just when we thought that one had been firmly put in its box. Only South Australia is prepared to go look at a public service approach, though as Greens Senator Sarah Hanson-Young said: “All kudos to the South Australian state government for standing up to fill the gap left by the missing-in-action Innovation Prime Minister, Malcolm Turnbull, but they’ve backed the wrong horse in funding a gas-fired power plant and letting rip on fracking.”
In the latest Grattan Institute report, Price Shock: Is the retail electricity market failing consumers?, Tom Woods, its Energy Program Director, provides evidence that in the electricity retail sector the anticipated price reductions have not happened, and innovation has been very slow in coming.
The privatisation of Australia’s electricity retail markets dates back to 1993. The ensuing decade saw a raft of reforms that initially delivered increases in productivity, lower prices and business innovation. But in the decade after that, this progress became much harder to sustain.
The idea was for states to create regulated monopolies in electricity transmission and distribution (poles and wires), while deregulating the retail side (the supply of gas and electricity to customers).
The competition in electricity generation largely delivered lower wholesale prices through the National Electricity Market (NEM), but not at the retail level.
Yet so far there have been few genuine innovations in electricity pricing. The most common tactic has been a discount for paying on time or by direct debit, although consumers are often frustrated when they discover that at the end of their contract they lose the discount even if they continue to pay the same way.
Products that offer different prices for electricity use at different times of the day have been slow to appear. These products have the potential to deliver major savings, yet the industry has failed to deliver them in a way that makes them easy for customers to understand and adopt.
There are government interventions that could fix the worst problems, without abandoning privatisation, But if not, as appears likely, governments must return to price regulation. The electricity retailers who are used to the current free market certainly won’t want that.