Peak groups report on electricity prices

The coming together of The Australian Industry Group, Brotherhood of St Lawrence, Choice and the Energy Efficiency Council, including their involvement in a study into electricity prices (which have been raised by 50% in he last 5 years) has a positive side. And in the opinion of this blog, this is for two very good reasons. The first is that any move that brings different and disparate groups together is doing something about the problem sets a good example that might encourage others. The second is that anything that sheds a light on something that not only brings hardship to many, but is also detrimental to the nation’s future economic and social health, is good.

However a proposal in the report, to enable consumers to sell demand response to the wholesale market during times of super peak demand, is wide off the mark. While it tries to deal with the finding that the electricity companies tend to charge at the peak rates, the market mechanism is seen as the way to fix the problem. The report also calls for electricity distribution companies to halt infrastructure expenditure for now wherever this is possible. This is recognition that much of the rising electricity prices are fueled by this expenditure. Overlooked is that the system provided in the course of government privatisations have enabled rorting. Huge sums being spent on “infrastructure consultation fees” to parent companies overseas.  Provision of profit guarantees for every dollar spent has further encourages rorting.

It is likely that this approach is influenced by the position of the Australian Industry Group and the Energy Efficiency Council, representing a range of technology, consultation and some of the energy supply companies. They are bound to look after heir members’ interests. They recognise that harms that are being caused, at the same time as retain faith in the economic rationalism of recent decades and continue to support the privatisation of Australia’s electricity generation and supply.

What is missed is that the present situation is the result of the economic agenda they support. It gave birth to the existing pricing system. Yes it can be improved to some extent. But this will be limited to tinkering around the edges, paying to attention to the symptoms and neglecting to tackle the cause. Sight should never be lost of the fact that the existing pricing system was included in the package as a sweetener to investors. The call for the scaling back on infrastructure expenditure amounts to replacing one sweetener with another. Australia’s electricity and generation should be based on what is needed for Australia and not on the narrow interests of major investors. It is a principle that should never be compromised.

Regardless of criticism about the shortcomings of what this group is proposing, the call for the introduction of time of use pricing and reduction of demand by strengthening energy efficiency programs are positive proposals that need to be fleshed out and deserve support.

Most important is that others should become active, put forward ideas, seek the most effective ways to respond collectively. This blog has begun to do its bit to raise the conversation and encourages others to participate.

Comment on feedback

Some good feedback has been received. See those that have been published. A number of  great ideas have been put forward. There is some important information that must be taken on board.  
Further discussion is needed. More people need to get involved. For this to happen, all of us have to get the word around and build a critical mass that will make it possible to take this t the next step. This blog can do its part. Others have to do their part as well. Post comments. Discuss with others. Use  Facebook etc. Tell your friends about this blog. Let’s get on with it.

Electricity companies rip-off Australians

Oops...sorry for typos and other errors in the Oct 3 post. The wrong version got out. Greater effort will be applied to avoid repeats in the future. Having said this, perhaps this shortcoming will be forgiven by readers. In the interests of accuracy, the correct version  has been published below.

Rising electricity prices over recent years, especially, but not only in Victoria, have been a disgrace. There has been absolutely no justification for this rip-off of Australian citizens. Sadly, governments are allowing this to happen.

Electricity companies have been doing nicely. A number of foreign based companies operating behind the scenes have been doing better still. For example, SP Ausnet has sent its parent Singapore Power $90 million in assorted fees and related party payments this year alone. Spark Infrastructure has handed over its own parent company, Hong Kong Based CKI, $54.5 million in the dame period, in the form of management fees.

Consider this in the context where, according to the record 40 percent of the reason for electricity price rises has been investment in transmission and distribution. The problem here is that this investment is occurring in conditions where governments have guaranteed a certain return on investment. That is, the companies take their cut regardless of the quality of their performance, by imposing this on consumers. Thus rising charges are not connected with costs so much as they are with guaranteed return. Coalition and Labor governments have both been responsible for setting up this system.

This is the essence of revelations of a recent Age Business survey.

Incentive has been given to the electricity companies to take advantage of the system by using some clever accounting, imposing a series of questionable management fees (essentially charging themselves and passing this off as costs). It is especially telling when there is good evidence to suggest that the system remains short of being at the standard that it should be, and arguably, has been a contributing factor to fairly recent and devastating bushfires.

Disclosed documents reveal that Singapore Power has been given the right to 1 percent of its subsidiary’s earnings before interest, tax, depreciation and amortisation, plus a further fee of 1 percent of the total capital expenditure. Singapore Power is owned by the government of Singapore.

The most important impact has been that rising electricity prices have been a major contributor to the falling standard of living being experienced by too many Australians. According to a range of indicators, more people are finding that they are having great difficulty in paying their bills. If we pride ourselves on being a just society, surely we would insist that this is wrong and that something should be done about it.

The extent of rising electricity prices is one of those factors that are not good for Australia’s economic prospects. Electricity is a key business resource. Unreasonable price hikes impose a substantial added cost to running a business and in an already difficult environment to operate; this can be the last straw.  Depressed sales do not help either. When many Australians have to choose to do without, in order to pay an exorbitant electricity bill, it does not help at all.

It is high time for some action to put an end to this.

And this is a timely warning for the people of New South Wales, who fade the prospect of the privatisation of their electricity supply. Experience in other parts of the country has shown that this is not a good idea.

It would be great to share some thoughts and ideas on what can be done.

Electricity companies rip-off Australians

Rising electricity prices over recent years, especially, but not only in Victoria, have been a disgrace. There has been absolutely no justification for this rip off of Australian citizens. Sadly, gover4nments are allowing this.

Electricity companies have been doing nicely out of this. A number of foreign based companies operating behind the scenes have been doing better still. For example, SP, Ausnet has sent its parent Singapore Power $90 million in assorted fees and related party payments this year alone. Spark Infrastructure has handed over its own parent company, Hong Kong based CKI $54.5 million in the same period, in the form of management fees.

Consider this in the context where according to the record, 40 percent of the reason for electricity price rises has been investment in transmission and distribution. The problem here is that this investment is occurring in conditions where governments have guaranteed a certain return on investment. That is, the companies take their cut regardless of the quality of their performance, by imposing this on consumers. Thus rising charges are not connected so much with costs as they are with the guaranteed return.  Coalition and Labor governments have been responsible for setting up this system.

This is the essence of revelations of a recent Age business Day survey.

Incentive has been given to the electricity companies to take advantage of the system by using some clever accounting, imposing a series of questionable management fees (essentially charging themselves and passing this off as costs), to boost inefficiency (this is more profitable). This is especially telling when there is god evidence to suggest that the system remains short of being at the standard that it should be and arguably has been a con tributing factor to recent devastating bushfires.

Disclosed documents reveal that Singapore Power has bee given the right to 1 percent of its subsidiaries earnings before interest, tax, depreciation, and amortisation and a further fee equal to 1 percent of the total capital expenditure. Singapore Power is owned by the government of Singapore. 

The most important impact has been that rising electricity prices have been a major contributor to the falling standard of living being experienced by too man Australians. According to a range of indicators, more people are finding that they are having great difficulty in paying their bills. If we pride ourselves in being a just society, surely we would insist that this is wrong and that something should be done about it.

The extent of rising electricity prices is one of those factors, which is not good for Australia’s economic prospect.  Electricity is a key business resource. Unreasonable price hikes impose a substantial added cost to running a business. In an already difficult environment to operate, this can be the last straw. Depressed sales do not help either. When many Australians have to choose to do without something in order to pay an exorbitant electricity bill I doesn’t help at all.

It is high time for some action to put an end to this situation.

And this is a timely warning for the people of New South Wales who face the prospect of the privatisation of their electricity supply. Experience in other parts of Australia, have shown that this is not a good idea. 

It would be great to share some thoughts on what ca 

Economic madness continues

A few months have passed since there was en entry on this blog.  During this time, the global economic climate has continued along the same trajectory. Despite the occasional talk fests, the promise of politicians and assorted economic witchdoctors that we are on the threshold of the good times, has failed to materialise. More than this, those who persist on being upbeat are getting lonelier by the day. 

If a better future for Australia is going to be constructed, recognition must be given to the realities of today. Only by this means can the appropriate action be taken.  A head in the sand approach can only lead to more mistakes and worse fortunes on the horizon.

A major point of concern is the ongoing situation in Greece. Much of the comment is about the need for Greece to pay off its debt and cut back drastically in government expenditure.

Let’s look at the first one. The solution being applied to pay off the debt is for Greece to borrow more.  Europe has not given a cash grant. It has enabled banks and other institutions to buy bonds off the Greek government. Proceeds from the bond sales are then to contribute to paying off the debt.  It sounds good. The trouble is that all that is being done is to provide the means to pay off a debt by creating another debt. It’s no different than individuals paying off a credit card debt with the use of another credit card.  When the bonds mature, the Greek government has to repay the money previously put forward, with interest on top of that.

So why is this being done? Basically, because only a short term view is being taken, buying a little time, hoping that something will turn up to prevent the crunch. The Greek people are asking why are what are often the very same banks that encouraged and profited from the debt, are being rewarded so handsomely. Even with the acceptance of a little less, they are the only ones likely to benefit from the situation. It is causing a great deal of angst. Should this continue grow and manifest itself into ongoing high level social turmoil, all bets are off.

The situation in Greece threatens to spill over into Italy and Spain. And if this occurs, given especially that these are much larger economies than Greece, no corner of Europe will remain unaffected. Such a crisis will spill over into the global economy and affect every nation.

Then there is a situation in the United States. Its debt [problem is more extensive that Europe’s.  Here too, future prospects look bleak, even if there is at the moment a small amount of more economic activity. Remember that this is from a very low base. The economic misfortunes of many have not turned around. Dissatisfaction is growing, as evidenced by the Occupy Wall Street movement.  Poll suggested during its peak that most Americans sympathised with its arguments.

How does this affect Australia? Basically, because Australia happens to be part of the global economy. Not only this. We are also significantly integrated into the American economy. What goes on there comes down to us.

Add to this that we have our own problems. Australia’s manufacturing industry continues to decline. Sure, this is something we have in common with many other developed countries. Our problem also has its own unique characteristics.  This is o something I will talk about another time. It is a problem because in order to turn negative economic prospects to positive ones, in a real and long term sense, we need to create value.  Economic recovery does not come about through clever entries into ledgers. It comes about in the real economy, through increasing our capacity to make things. Only by this means will we be able to raise the wealth to pay our way. Doing otherwise is only robbing Peter to pay Paul.

This brings us to the futility of the austerity approach. It might provide a means to redirect money to pay off debts in the immediate sense. It also undermines the foundation of an economy by shrinking its market, and also, downgrading our capacity to get on our feet. What else could be in store, if we neglect to train the young in needed skills, provide them with opportunities and lay down the total infrastructure needs that a prosperous economy needs?

Could someone do something about the idiots making the decisions, before they completely wreck the place?

It is the inability to solve the reality of social crisis and the threat of social turmoil that is feared.