Electricity prices blowout despite promises of privatisation: report

The Australia Institute has released a report Electricity Costs which finds that electricity prices have increased at three times the rate of CPI. The report finds that companies have been ‘gold-plating’ financial assets and passing those costs onto consumers.

[Full report see attachment below]

“All in all we find that the additional direct and indirect charges are likely to be of the order of $404 to $502 per household per annum,” said author of the report, Senior Fellow David Richardson.

“The promise two decades ago Australia was that privatising, corporatising and marketization of the electricity sector would deliver cheaper and better electricity supply. That never happened.

“Between December 1996 and December 2016 Australian electricity prices increased by 183 per cent—almost three times the overall increase in prices. In those figures the carbon price was barely noticeable.”

Figure 1: Electricity prices compared with all prices (CPI); Sep 1980 = 100

electricity price rise

Source: Authors’ calculations based on ABS (2017) Consumer Price Index, Australia, Cat no 6401.0, 25 Jan.

“Instead, privatisation has seen a blow out in the number of managers relative to other workers in the electricity labour force and it now employs an army of sales, marketing and other workers who do not actually make electricity.

The report also found that reforms seemed to encourage profit gouging on the part of companies able to inflate the asset base used in calculating the permitted return on assets. More than half the asset base appears to be ‘goodwill’ and retained earnings.

“There is an odd process in which high rates of profits are used to ‘gold plate’ the financial asset base without improving the ability to generate electricity, but the unproductive capital base is used to increase the price we pay for electricity,” Richardson said.

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