Don't believe the big power privatisation myth

It's a commonly held assumption that if you sell the poles and wires, power prices will skyrocket. The evidence suggests otherwise.

It is simply amazing how an idea can get fixed in the public mind by politicians and commentators even when it is demonstrably wrong.

For example, we have former senator Graham Richardson, Mr Whatever-It-Takes for Bob Hawke and now a media commentator, stating in The Australian that “the mob knows that if you sell the poles and wires, the prices will jump and will jump a long way”.

The problem with this claim is that, on the evidence in Australia over the past 10-12 years, it isn’t true.

Here’s the product of research undertaken by Ernst & Young for the New South Wales Treasury in which it broke down the changes in long-term electricity prices per megawatt hour state-by-state on the east coast mainland from 1996 (when the privatisation push began) to 2013.

In this period, New South Wales prices went up by $136 per MWh and 67 per cent came from network charges.

In Queensland, the rise was $86 per MWh and 87 per cent came from higher network costs.

These are the two states with the most residential accountholders (five million between them) and the most business customers (600,000 in total), so of course “the mob” knows that the big spike in network charges (on the back of an aggregate $26 billion in infrastructure capital outlays in NSW and Queensland, planned and implemented under state Labor governments) is a considerable cause of their hip pocket pain.

Next is Victoria, where Ernst & Young showed that retail power prices rose $61 per MWh in the review period and network costs actually fell by $20. Yes, 30 per cent of the rise came from a network-related cost, but this was due to the roll-out of smart meters implemented by the Labor governments of Steve Bracks and John Brumby.

There are 2.3 million residential accountholders in Victoria. It and the other two big east coast states account for the lion’s share of “the mob”. If they are under the impression that privatisation of networks brought them power price rises, they are misinformed.

Then there is South Australia, where Ernst & Young says retail costs between 1998 and 2011 rose by $36 per MWh, a period when network charges fell by $23. “A hundred per cent of the increase came from non-network costs.”

Some of the bigger bills across the east coast, as all the pet-shop galahs should remember, flow from the brief impact of the Rudd/Gillard carbon price that has now dropped away again, while a relatively small extra cost is imposed by the renewable energy target. In the case of Queensland, the rooftop solar PV subsidy scheme implemented by Anna Bligh is partly responsible.

The point of contention here is not that the geography of NSW and Queensland imposes a greater requirement for network capex (and subsequently opex) than in the much smaller Victoria, but the assertion by Richardson that if you sell the systems, prices will “jump a long way.”

It is simply untrue.

Gary Sturgess, once a key adviser to Nick Greiner and now a professor at the Australian & New Zealand School of Government, has made an interesting point in a pro-privatisation newspaper commentary. The public has never liked privatisation, he said, and research in Britain shows that, like here, most people oppose it before it occurs.

However, he asserts, six months later, as long as it has been done properly, they don’t care.

The test bed for this will be New South Wales on March 28.

The deeply unpopular Campbell Newman couldn’t persuade Queenslanders to buy his sale plan. Can the very popular Mike Baird in NSW carry a similar concept over the electoral line?

We will know in barely seven weeks, but it will be a good idea at the start of this latest campaign to nail the furphy that privatization drives up power bills.

Let’s start with Graham Richardson reading the Ernst & Young report and telling “the mob” he has it wrong.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of OnPower, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.

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