Years too late, the ACCC recognises the failure of the NEM

The latest ACCC report on the National Electricity Market is an incoherent mess, reflecting the breakdown of the neoliberal/market liberal assumptions on which both the ACCC and the NEM are founded. But I can at least endorse this statement

There are many causes of the current problems in the electricity market. At all stages of the supply
chain decisions have been made over many years by many governments that set the NEM on the
wrong course.

As I said in a report to the Electrical Trades Union in 2014

The National Electricity Market was implemented in the context of National Competition Policy and at a time when faith in competitive markets was at its peak. The [resulting’ design flaws  have led, over 20 years, to the failure of the NEM … These failures are not accidental. Rather they can be explained by fundamental and incurable flaws in the NEM model of pricing, regulation and incentives for investment. Marginal adjustments such as those being proposed at present will inevitably prove inadequate.

Back then, as I recall, the idea of that the NEM was a failure was not so popular. Rather, the only obstacle to complete success was said to be the remnants of public ownership in NSW and Queensland.

20 thoughts on “Years too late, the ACCC recognises the failure of the NEM

  1. Re-nationalising a whole bunch of things is our only hope. We need to re-nationalise power, water, mass transport, communications, infrastructure and other utilities. We need to re-nationalise the Commonwealth Bank. We need to reduce private players and private influence in education, health, welfare, pharmaceuticals, serums, insurance and superannuation. We need to strongly re-regulate finance and strengthen unions along with improved worker and citizen protections and rights. Corporations’ powers and rights along with the powers and rights of the owners of major capital need to be be greatly reduced.

  2. Prof Q, you have been on the money on all major policy disasters that have happened under ‘neoliberalism’ (‘naive market economics’ or, as I now like to call it out, Infantile Policy Advice).

  3. You cannot re-nationalise them it would cost too much.
    Sorry John but since you make a persuasive case the electricity is far from competitive it is no argument against the -neo-liberal- agenda at all!

  4. nottrampis, would you care to rewrite your second sentence. It makes no sense to me at all.
    I’ve always thought that the privatisation of essential services made no economic sense as it just creates private monopolies or groups of companies that appear to act like cartels and charge higher prices than normal to their long-suffering customers. Just look at the behaviour of the owners of our major airports these days.

  5. Highlights the problem in the comments section. What a mess neoliberalism makes of anything it sinks its septic hooks into.

    Every which way, power generation/distribution is a loser over decades, for decades, a perfect paradigm for so many similar things.

  6. John,

    The neo-liberal agenda is for competitive markets i.e where the consumer rules. As john shows this patently does not apply to the electricity market.

  7. Can I just add any numbskull would have recognised this before privatisation let alone being a Rhodes Scholar.
    You should NEVER privatise essential services.

  8. Interesting. The neo-liberal agenda, as characterised by nottrampis, does not distinguish between a desirable outcome and the conditions under which the desirable outcome is conceivable (the latter is the subject of theoretical research). IMHO this is the point where dogma replaces theoretical knowledge. The latter is amenable to comparing theoretical conditions with empirical observations, it is amenable to refinement, to extensions, to alternative premises. The former is blind face in a belief how the world should look like – because this is what we want (?).

    As for energy prices, not all ‘consumers’ complain about the energy prices, only those with incomes not big enough to pay for the bills and all other essential costs that come with a culturally and socially defined decent way of life. There is a minority of ‘consumers’, who have no problem paying for huge electricity bills which come due to fully air conditioned huge houses and pool pumps for large swimming pools while buying a Tesla or two in addition to private school fees, …….

    To ask those who literally and physically suffer from the high energy costs to ‘shop around’ (exercise choice) is to ask these people work (part-time as a buyer) to achieve a little less bad to the worst bad.

    The dictum “where the consumer rules”, could read “where some consumers rule”.

    Neo-liberalism, as characterised by nottrampis, ignores the minimum-wealth condition that is well defined in theoretical models of ‘competitive private ownership economies’.

  9. Sorry mate you miss the point.
    If consumer sovereignty rules then you have the most desirable outcome.

    Where some consumers rules does not make sense.

  10. Mate, it seems you miss the point. The specified desirable outcome crucially depends on the minimum wealth condition being fulfilled for each and every member of ‘the economy’ at all times and this is not the case empirically, as I have illustrated. Therefore, the neo-liberal characterisation of a ‘competitive market’, as provided by nottrumpis, is an empty statement at best on theoretical and empirical grounds.

  11. The question that puzzles me is whether the people who envisaged and presided over the wave of privatizations were a) stupid, in thinking that core economic principles were not going to apply, or b) malicious, in knowing full well what would happen, but wanting the waste of public funds so as to impoverish government and channel funds to mates in the the consulting and “management” sectors. All those fees must have helped inflate at least the Sydney housing market.

  12. Advocates of infrastructure privatisation are either malicious and/or downright ignorant. It is well known in the corporate management researches that when executive remuneration incentive structure does not include sufficient long term key performance indicators, it will likely result in under-investment of projects/capital equipment that only starts to bring positive net present value after a very long time. Even when the incentive structure is well constructed, executives are still normally hesitant to make investment decisions that are of a very significant sum as that will cost them their job if things don’t go as planed e.g. Woolworth’s CEO Grant O’Brien’s resignation after Masters’ failure. This is how difficult it is to get incentives right, which is fundamental to the “free market” its advocates fantasise about. This is why Telstra still hasn’t gotten Australia to fibre after years of privatisation, and the vice versa is also true regarding aggressive and wasteful investment decisions of the electricity market operators.

    While I appreciate Professor Quiggin and many others who are actively resisting, criticising and pushing back again this stupidity, however debbieaussie has nailed it regarding the cost of re-nationalisation. The cost is a concern, not necessarily to that of an economist or a rational government, but when the mentality of the voters these days regarding infrastructure investment are so “worry about today, don’t worry about tomorrow”, we’ll have a problem building a Sydney Harbour Bridge with 2 lanes let alone re-nationalising anything.

  13. I am one of the dills who bought stock in Origin Energy, the evil monopolist that is ripping off consumers so unmercifully. My thinking at the time was that shares in Origin would provide a hedge against my high electricity bills – I have since switched to solar so that rationale makes less sense. Origin has a fair bit of debt because of their involvement with natural gas developments but have hardly performed as a greedy monopolist. Indeed, since 2008/09, their sales and profits have declined – they made hefty losses in 2015 and omitted a dividend last year. The story seems more complicated than what is popularly believed.

  14. harryclarke, are the profit (loss) results you mention the outcome of electricity and gas or only electricity? (While the mantra of modern public sector management was no cross-subsidisation in the public sector, companies are heavily into it.)

  15. It’s interesting, John, that you seem to have moved away from full nationalisation of the whole box and dice, as I understood your position to be a couple of decades ago. Now you seem to want to just nationalise the distributors, wholesalers and retailers – leaving the generators (who IMO would in time be all private) to operate in a market created by a (nationalised) monopsonist distributor/wholesaler/retailer. Have I got that right?

    Your critics surely would have a point in saying that massively vertically integrated monopolies, as such an agency must be, are not renowned for their agility in the face of technological change, nor for their customer focus. And with the renewables revolution and consequent massive change in scale economies and geographic patterns this would be a very serious problem. Of course the actually existing NEM also has this last problem (it certainly can’t work with millions of micro-generators from rooftop panels, for instance), as well as others you correctly point out, but it does seem to me that in the broad context this is the sort of problen that a well set up set of markets can cope with. I think a much better NEM is needed rather than eliminating it.

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