Electricity privatisation − a record of failure

Chain Reaction #120, March 2013, www.foe.org.au/chain-reaction/editions/120

Australian economist Prof. John Quiggin has launched a scathing attack on energy sector privatisation, concluding that it has failed to deliver promised benefits for consumers. Quiggin's report, titled 'Electricity Privatisation in Australia: A Record of Failure', was commissioned by the Victorian branch of the Electrical Trades Union and launched at Parliament House in Brisbane on February 20.

The report draws on Quiggin's 20 years of work on this topic and includes case studies of the various states where privatisation proposals have been put forward. The report also considers the market reform process which gave rise to the National Electricity Market. Quiggin views the reforms as having been fundamentally misconceived, relying on prices to perform a range of incompatible functions, while leaving retail prices largely unrelated to the actual cost of electricity generation and distribution.

Key findings include:

  • price rises have been highest in states with privatised electricity networks;
  • customer dissatisfaction jumped, with complaints to the energy ombudsman in privatised states leaping from 500 to over 50,000 per annum;
  • resources have been diverted away from operational functions to management and marketing, resulting in higher costs and poorer service;
  • reliability has declined across a wide range of measures in Victoria;
  • promised increases to investment efficiency have not occurred;
  • real labour productivity has reduced as employment and training of tradespeople was gutted and numbers of managerial and sales staff exploded;
  • private owners are receiving unjustifiably high rates of return based on the low investment risk; and
  • consumers in privatised states bear the cost of approximately 10% per annum interest on private owners' debt, compared to substantially lower government borrowing costs of 3%.

Quiggin said: "Privatisation, corporatisation and the creation of competitive electricity markets were supposed to give consumers lower prices and more choice, promote efficiency and reliability, and drive better investment decisions. But after twenty years the evidence is that none of these promised improvements have been delivered.

"After a marked fall in real electricity prices across Australia from the 1950s until the mid-1990s under public ownership, privatisation and the introduction of the National Electricity Market led to a reversal of that trend. Prices have risen dramatically. A secure low-cost supply has been replaced with a bewildering array of offers, all at costs inflated by a huge expansion in marketing.

"My research comprehensively finds that the free market based reform process in energy has been a failure. Reforms have failed to deliver a competitive market that benefits consumers. The evidence is there that public ownership of critical energy infrastructure is the only sensible response."

The report is posted at: http://tinyurl.com/quiggin-etu