Is Electricity Privatisation a Boon for Consumers?

Friday, January 30th, 2015
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Debate continues over whether privatisation of the power network will raise or reduce the power bills of Australian consumers.

A new report claims that the further privatisation of Australia’s electricity networks will result in significant benefits for household consumers while also boosting the financial health of state governments.

The EY report entitled Network Pricing Trends – a Queensland Perspective, claims network prices have fallen in real terms for average consumers as a result of the electricity privatisation programs launched in Victoria and South Australia.

These price declines have not been accompanied by a deterioration in service quality levels, despite benchmarking that indicates privatised network businesses are more cost effective that their government-run peers.

In NSW and Queensland, however, where electricity network service providers remain controlled by the state in the form government-owned corporations, network prices have increased in real terms by as much as 100 per cent over a commensurate time period.

The report, which focused on the Queensland power sector, was commissioned by a group of peak state and national business bodies including Infrastructure Partnerships Australia, the Chamber of Commerce & Industry Queensland (CCIQ), the Australian Industry Group and the Property Council of Australia.

According to the report poor management of the Queensland power grid by the public sector has led to worsening service quality for state residents in exchange for higher prices, with customer network charges rising by 140 per cent in Queensland over the past 15 years, and customer power bills up almost 90 per cent during the same period.

As a result of these increases Queensland’s electricity is now 37 per cent more expensive than it should be, causing the average family in the state to incur an additional $570 in costs each year.

During the same fifteen year period Victoria has seen a decline in network prices of 18 per cent as a result of the state’s privatisation program.

The report advocates leasing of the grid to private operators, in order to both reduce the costs borne by consumers as well as bolster the health of Queensland’s struggling finances.

“Queensland’s high public debt has already seen the loss of the AAA rating – and leaves Queensland with no options to pay for new infrastructure,” said the report. “The lease of the grid will reduce state debt by $25 billion and save Queensland $1.3 billion in annual interest charges on its debt.”

The report arrives just as Liberal Premier Mike Baird touts plans to privatise as much as 49 per cent of NSW’s electricity transmission and distribution businesses in order to raise $13 billion for state infrastructure projects.

Baird has pointed to related research by EY in support his privatisation plan, which also enjoys the unlikely backing of key figures from the other side of politics, including former prime minister Paul Keating, former federal minister Martin Ferguson and former NSW David Borger.

Towards the end of last year Keating made public his support for Baird’s power privatisation plans, while rebuking his own party for being “too late in making clear what belongs to the state and what belongs to the private economy.”

Opponents of Baird’s privatisation plan claim that its effect will be the opposite to that forecast by EY research, and will raise household power prices significantly while also taking a toll on the state’s finances.

A report released in December by economists Stephen Koukoulas and Thomas Devlin entitled Nothing to gain, plenty to lose claims that the privatisation of nearly half the NSW electricity network will push household power prices higher by roughly $100 a year.

The Koukoulas and Devlin report claims that EY’s research in support of power privatisation plans for NSW is defective, because it fails to consider the higher maintenance costs that arise as a result of the greater physical scope of the NSW network.

The report also claimed that privatisation was a potential threat to NSW’s Triple A credit rating, as it would deprive the state government of billions of dollars in annual dividends that ensure revenue growth remains greater than expense growth.

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