Electricity Prices: Consumers get short-end of ‘big stick’

The wasteful structure of private competition in the electricity sector is costing every Australian household over $200 per year, according to new research from The Australia Institute.

As heatwaves across Australia heighten concern for high electricity prices as households try and stay cool, new research shows the problem in electricity pricing is structural and the Prime Minister’s proposed ‘big stick’ approach to breaking up electricity companies will likely exacerbate the problem, rather than fix it.

Key findings:

  • Real output per employees in the electricity sector has fallen by 37% between 2000 and 2018, due to the excessive allocation of ultimately unproductive labour to advertising, sales, contract administration and other activities associated with privatisation.
  • Productivity growth has been worse than for any other industry in Australia, completely contrary to the assumption that privatisation enhances efficiency.
  • The number of sales staff employed by electricity companies has grown almost 400% since the industry began to be privatised in the mid-1990s and the number of managers has grown over 200%.
  • Over the same period, the number of electrical tradespeople and other workers involved in actual production has grown just 21%.
  • Electricity sector now spends more on finance and banking costs than the actual fossil fuels that power electricity generation.

“Reining in soaring electricity prices requires addressing the huge inefficiencies and wastes associated with privatisation — not just symbolic tough-talk to a handful of CEOs,” says David Richardson, Senior Research Fellow at The Australia Institute.

“Privatisation of the electricity industry has resulted in enormous increases in wasteful spending, including high-pressure sales tactics, excessive numbers of managers, and dizzying advertising and so-called ‘chase’ costs.

“The annual cost of these economically wasteful activities adds up to $2 billion per year. These costs are passed on to customers in their electricity bill, leaving households over $200 worse off a year.

“The financial sector have also reaped huge rewards from power privatisation. In fact, the electricity industry now spends more on finance and banking costs than it does on the actual fossil fuels to power its electricity generators.

“Further fragmenting the electricity sector will see these costs increase as more players set up with their own advertising departments, duplicate management structures and so on.

“The productivity of electricity production has been dismal under privatisation, contrary to the promises of the architects of the competition model.

“The government’s phony ‘big-stick’ approach to reducing electricity prices is merely an attempt to manage the political optics of the crisis in the system, not address its true causes.”

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Anna Chang Communications Director

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anna@australiainstitute.org.au