Published at https://www.tai.org.au/index.php?q=node%2F19&pubid=1142&act=display
by the Australia
Institute recent paper on http://www.tai.org.au/ -
Has some
interesting advice on the industry productivity and non-achieved outcomes of
lower prices through privatisation with its conclusion printed below as an extract
.
However
contributions and comments on this paper have included comments from the ‘
smartenergyuniverse “ are included below and at -
http://www.smartenergyuniverse.com/spotlight/15882-electricity-and-privatization-what-happened-to-those-promises
and include -
“ The analysis shows that since
Victoria privatized power in the 1990s, electricity prices have outpaced
inflation, increasing by 170 per cent compared with an increase of 60 per cent
in the consumer price index.” - "While
Premier O'Farrell and Peter Costello might believe a power sell-off is the answer
to New South Wales' and Queensland's budget problems, it's unlikely to ease cost of living pressures and might even slug
consumers with higher bills and worse service," the full summary from smartenergyuniverse
can be located at - http://www.smartenergyuniverse.com/spotlight/15882-electricity-and-privatization-what-happened-to-those-promises
Smartenergyuniverse –
Electricity prices
are a major contributor to cost of living pressures and a major cause of
concern for Australian consumers. While the carbon tax has recently been
depicted as the main culprit in electricity price increases, electricity prices
have been increasing rapidly for the past two decades. The cost of electricity
increased by 170 per cent from 1995 to 2012, an increase four times higher than
the rise in the consumer price index (CPI).
This increase has
occurred despite the industry being subjected to privatization and
corporatization for the past two decades, a process that promised to increase
efficiency and lower prices. The agenda of the electricity, gas and water
industries continues to push towards privatization, a direction supported by
people on both sides of state politics.
In the context of
continued support for privatization it is important to ask why, despite the
promise of lower prices, electricity costs have risen since the reforms began.
This paper examines this question and explains some of the factors behind the
apparent contradiction between price increases and the promises of
privatization. It reveals that far from privatization reducing costs it is
likely it has contributed to price increases.
A major factor that
appears to be involved in the increase in electricity prices is the
productivity slump that has occurred in the sector since privatization. Output
per worker has fallen markedly in electricity while it has increased in the
rest of the economy. Over the period June 1995 to the present, productivity
across all workers increased by 33.6 per cent, while in the electricity sector
it declined by 24.9 per cent.
One explanation for
this dramatic fall in output per worker is the rapid increase in staff numbers
in occupations that do not have a direct role in actually generating
electricity. For example, the number of managers in the sector has grown from
6,000 to 19,000 from 1997 to 2012, a rise of 217 per cent. This has seen the
ratio of managers to workers change from one manager to every 13 workers in
1997 to one manager for every nine workers in 2012.
In contrast to this,
there was a much smaller increase in the group of people who are directly
involved in producing electricity. It is likely that this change in the
sector’s employment structure is a consequence of privatization and the split
of electricity entities into much smaller units, each requiring its own
management and administration team. The cost of this investment in individual
teams has likely been recovered from consumers through higher electricity
prices.
Above advice from - http://www.smartenergyuniverse.com/spotlight/15882-electricity-and-privatization-what-happened-to-those-promises
Conclusion from Australia Institute
recent paper at https://www.tai.org.au/index.php?q=node%2F19&pubid=1142&act=display
Australia
Institute web site http://www.tai.org.au/
The
advocates of electricity reforms in the 1990s and since have argued for
privatisation, corporatisation and competition with the promise of a more
efficient industry and lower costs. The pervasive nature of this advocacy
suggests there should be some solid evidence by now, especially with two
decades of experience of these ‘reforms’ behind us.
Despite
the promise of lower prices and a more efficient industry, electricity prices
instead have been a major cause for concern on the part of Australian
consumers. Over the period since March 1995 electricity prices have outpaced
the CPI with an increase of 170 per cent compared with an increase of 60 per
cent for the CPI.
One
of the factors that is bound to be implicated in the relative increase in
electricity prices is the slump in productivity in the sector. The data we have
to use is often contaminated because gas and water are included in the one
industry by the ABS so we are forced to consider electricity, gas and water as
a whole. Nevertheless the results show that labour productivity has slumped in
the industry. Over the period June 1995 to the present, productivity across all
industries in Australia increased by 33.6 per cent. However, in electricity,
gas and water, productivity actually declined by 24.9 per cent. On the face of
it, output per worker fell markedly in electricity while it increased in most
of the rest of the economy. This is a major adverse finding for an industry
that has supposedly been the subject of an enormous reform effort on the part
of Australian governments.
Other
explanations have been put for the slump in electricity’s productivity and
those explanations may well go part of the way towards a full explanation.
However, to date it seems there has been little examination of some of the
consequences of privatisation and the reform agenda more generally. Some clues
to a more complete explanation are found in the labour market data on the
categories of workers found in the electricity industry.
One of the consequences of
privatisation and the split of traditional electricity entities into smaller
units seems to have been an increase in the number of managers by 217 per cent
since 1997. At the beginning there was a manager for every 13 workers but that
had fallen to a manager for every nine workers by 2012. A doubling in the
number of clerical and administrative workers may have been in part a
consequence of the need to look after the increase in management numbers.
Privatisation and the increasing reliance on the market also seem implicated in
the increase in sales workers from 1,000 to 6,000. Among the professional
workers there was a dramatic increase from 2,227 to 9,376 workers described as
‘business, human resource and marketing professionals’. It is not difficult to
understand why this happened; each time a separate entity was hived off it
would have needed its own human resources section, a new billing operation and
of course a new corporate affairs section. These are some of the consequences
of the privatisation and associated policies that were supposed to increase
efficiencies and drive down prices.
By contrast there was a much smaller increase in the sort of
people who actually do the work of producing electricity. For example, the
number of technicians and trades workers increased by 28 per cent, in line with
the increase in the value added in this industry. Generally the privatisation
and reform agenda seems to have generated a large increase in the labour
required in the electricity industry, but the large increases experienced were
in workers engaged in non-core activities.
Another
factor that may well explain a good deal of the increase in electricity costs
is the ‘asset price inflation’ involved in the privatisation process. Private
buyers are willing to pay a good deal more than the value of the plant and
equipment because of the potential profitability involved in buying a business
with monopoly pricing power. However, for the new owner there is now an
objective need to increase prices to earn a competitive return on the inflated
asset price as well as to cover depreciation and amortisation expenses. In this
way privatisation directly increases the capital servicing costs associated
with electricity supply.
Both the
original paper and comments are well worth readying for those following the electricity
privatisation debate, both in Australia and elsewhere
