EDITORIAL: by Peter WestmoreNews Weekly
Why utility prices are going through the roof
, February 19, 2011
Despite relatively low inflation in Australia, the prices of electricity, gas and water to consumers have been rising rapidly.
Official statistics show that in the year to September last year, consumer prices overall rose by just 2.8 per cent. However, electricity rose by 12.4 per cent, water and sewerage by 12.8 per cent, and gas by 9.8 per cent. In the year to December, the same pattern was repeated.
The recent price increases are the tip of an iceberg. The head of the NSW power regulator, Rod Sims, made a presentation to the federal Parliament's climate change committee last November, which said in part, "Electricity prices have risen by around 30% in the last four years in Australia in real terms; this is a 30% increase on top of inflation."
His consultancy, Port Jackson Partners, issued a report in August 2009 which stated, "A recent study by Port Jackson Partners considered the impact of all the changes occurring in the electricity industry on typical electricity prices. The results are startling - electricity costs for businesses in some states could double by 2015, and margins for a typical company (even one with modest electricity consumption, such as a retailer) could decrease by 10%."
According to Mr Sims, the introduction of a price on carbon will jack up prices by a further 40 per cent.
He is not alone in making these predictions. AGL Energy's chief economist, Paul Simshauser said last week, "Up to 2015, under any plausible scenario, power prices will double. It's unavoidable." (Australian Financial Review
, February 8, 2011).
The effect of rising electricity, gas and water charges will be devastating for many businesses, and for consumers. It will inevitably feed through into higher prices, pushing up inflation, making Australian firms less competitive, depressing economic activity, and forcing up unemployment.
Governments which permit this to occur - state or federal - face electoral oblivion.
As a country which for generations has been able to provide low-cost power to both business and consumers, and which has almost inexhaustible supplies of coal and gas, the question must be asked: what is going on?
Although governments will never admit it, part of the cause goes back to the privatisation of electricity, gas and water utilities in most states in the 1990s, driven by the Hawke-Keating governments' National Competition Policy, which was embraced and extended by John Howard.
The policy produced windfall profits for state governments - which promptly squandered the billions of dollars generated by asset sales.
To avoid rapid increases in prices for electricity, gas and water, measures were also introduced to artificially hold down price rises after privatisation. These measures worked; but had the inevitable consequence that there has been minimal investment in infrastructure, including base-load power, development of cheap gas reservoirs and water storages, despite rising demand and increasing population.
In the electricity industry, the policy positively discouraged the building of coal-fired power stations, because the profits from producing peak-load power were massive, while prices for base-load power barely covered the cost of production.
This was accentuated by both Labor and Coalition governments' attempts to accommodate the environmental lobby, which was ideologically opposed to coal-fired power stations and new dams.
On top of this, Labor governments - state and federal - have declared that they will impose a "price on carbon", as part of their response to global warming. This has effectively guaranteed that no new coal-fired power stations will be built, and the low-cost Victorian brown-coal deposits, the foundation of the state's power generation, are almost worthless.
The business-as-usual approach taken by governments can only deepen this emerging crisis. There needs to be a complete policy turn-around.
There is a way out. In the electricity industry, there needs to be a reversal of the massively expensive green energy policies of solar and wind-generation, which are ultimately paid for by consumers. Available capital should be directed towards the building of new base-load power stations.
The proposed mining tax (which includes a 30 per cent tax on coal) and the Gillard Government's proposed "price on carbon", another carbon tax, need to be abandoned.
The development of new gas reservoirs (including expansion of existing gas fields) needs to be accelerated, or else some of the natural gas from the North-West Shelf, currently exported, should be diverted for use in Australia.
The heavy rains which have caused so much damage in eastern Australia over recent months are a reminder of the need for construction of new water storages, not only for flood abatement but for the urgent needs of agriculture, the cities and for environmental flows.
Political parties which espouse these policies will win the support of many Australians, and may help avert the worst consequences of past policy failures.Peter Westmore is national president of the National Civic Council.