I’ve had the unusual experience of being cited as an authoritative expert* by both the Oz and AFR this week. Unfortunately, the Oz got the story wrong, and the AFR report, while correct on a careful reading, is misleading. The issue is the impact of electricity privatisation on power prices.
Direct comparisons suggest that consumer prices don’t differ much between NSW and Queensland (with public ownership) and SA and Vic (with privatisation), though SA is highest.
The advocates of privatisation have focused on distribution charges, showing in the process that they don’t understand the National Electricity Market reforms they and their ideological allies pushed through in the 1990s. Under the system of regulation, distributors are allowed to charge a price sufficient to cover their “efficient costs”, which are determined in large measure by benchmarking against other distributors. So, if private firms are more efficient than public firms, that should have no effect on regulated distribution charges, only on relative profitability. **
As the AFR and Oz both gleefully pointed out, that analysis contradicts what they called Luke Foley’s “great lie”, that prices will rise if privatisation takes place. Unfortunately, it also contradicts the equal and opposite lie, that prices will fall if privatisation takes place. The AFR gives a misleading headline, but is correct in the body of its report, saying “The prices charged by the government-owned NSW network companies will go down – not up – whether or not they are leased out to private operators.” That contradicts Foley’s claims, but also the opposite claims made by the Liberals.
I look forward to the AFR and Oz correcting this error and presenting the correct analysis (only joking!).
More seriously, I’m hoping to do a proper analysis of electricity prices and why they have risen so much under the NEM, contrary to the predictions of the micro reform lobby of which both the Oz and the Fin are part.
* Of course, I was cited in an “even the liberal New Republic …” way. The AFR noted, reasonably enough, that I was opposed to privatisation. The Oz went full-on as only the Oz can do, reprinting some of Michael Stutchbury’s hit piece, written for them before he jumped ship to the Fin. Since this piece earned me a very nice write up in the New York Times, I guess I can’t complain.
** Disclosure: I was for some years, a member of the Queensland Competition Authority, which regulated distribution charges. I’ll write more about this, if I get time.