THE PRIVATISED ENERGY INDUSTRY - BUYER BEWARE!
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How Did We Get Here?
In 1993-97, the Kennett Government privatised the old SECV. The advice of engineers was ignored as Economic Rationalist economists took over. In North America, the private electricity industry is composed of highly regulated businesses. Infrastructure involved in generation and distribution of electricity is managed as one unit. This has advantages such as allowing failure of one generator to be managed by shifting power-generation to another. In Victoria, the Kennett Government opted for a lightly regulated model in which inconvenience caused to consumers by systematic failure cannot be minimised in this way.
Where Are the Price Cuts We Were Promised?
Before privatisation in 1993, Victorian Treasurer Alan Stockdale lifted the fee paid by consumers for connection to the system, from $17 to $33. This resulted in an increase of $64 per year per household before any electricity is ever used. Stockdale also raised the usage charge by 10%. Since privatisation, cuts in charges have largely gone to big users with muscle to negotiate deals with electricity companies. Households and small businesses have had charges determined by the "Maximum Uniform Tariff' (MUT) which has done little to lower bills. Even the so-called Winter Bonus is actually merely the return of 1 of every 3 dollars we have already paid as part of the connection fee.
Won't Full Retail Contestability Lower Charges?
The 42% of customers from households and small businesses currently covered by the MUT will be subject to Full Retail Contestability (FRC) as of 1/1/2001. In theory, customers are free to negotiate deals with companies. In practice, small customers will be disadvantaged not only by the small amounts of electricity that they use but also by lack of knowledge. In the deregulated industry, anyone is legally entitled to sell you electricity on behalf of a retailer. There is no legislative requirement that "brokers" and "aggregators" who undertake such sales be licensed or meet particular standards. A major flaw of the electricity market is that customers pay not only for electricity they actually use and delivery of electricity but for-the cost of obtaining energy from an alternative source in the event of systematic failure. This risk payment is passed on to customers in the form of Ancillary Service Payments and VOLL (Value of Loss of Load); ie: the cost of obtaining an alternative supply of energy.
A regulatory authority called NEMMCO manages the national electricity system. It can deal with demand for electricity exceeding supply by cutting off supply to consumers in particular regions. When this occurs, an alternative source of electricity may actually have to be found. Prices to consumers will then reflect the cost of finding such an alternative source of energy. Electricity generators sell energy to retailers every five minutes. The price can therefore vary every five minutes. When demand for electricity is very high, alternative sources of energy will be harder to find and their cost will be higher than at other times. This can be reflected in components of your "usage" It is difficult to say exactly what impact VOLL will have on individual electricity bills. It depends on terms of "hedging contracts" between generators and retailers for purchase of electricity from alternative sources in the event of systematic failure. The Contract price is on average above the market price. ASPs and VOLL can drive up the price to extraordinary levels in times of peak demand. California has an electricity system similar to Victoria's. Between July and August 2000, factors including poor maintenance, high temperatures and high demand due to the use of air conditioners resulted in monthly electricity price rises in the San Diego area averaging $700 per household. The $700 increase was based on a VOLL of $250 a megawatt hour. In Victoria the VOLL is $5,000 a megawatt hour. The Government is raising VOLL to $10', 000 a megawatt hour in 2001 and $20,000 by the end of 2002. If you lack knowledge when you negotiate your contract, imagine the fees you can incur!
What is Profiling and How Will it Affect Households After 1/1/2001?
Profiling is charging consumers according
to a "profile" based on which "category" they are in. Once you are assigned
a "profile", you are assumed to be using power at the rate determined by
the profile whether or not you actually are.
Profiling is wrong for a number
of reasons, including the following: The poor, environmentalists who conserve
power, etc end up subsidising Toorak mansions with heated swimming pools
and lighted tennis courts.
Profiling is environmentally harmful.
It does nothing to reign in excessive use.
Profiling sends no signals to the
market about demand for electricity by individual households and small
businesses ( ie: the most volatile group of energy users and the group
the market most needs to hear from). It is very undemocratic in that it
does not take the actual demands of users into account. If you want to
become a part of this campaign or if you simply want to assist to build
this meeting by:
The Victorian Government has decided
to assign the same "profile" to all of the 42% of customers in the market
who are households or small businesses. If ASPs or VOLL rise because of
peak demand or systematic failure, the price of electricity skyrockets.
Under profiling, households and small businesses can be charged excessive
rates for power that they never used. Don't sign contracts allowing companies
to charge you for electricity you have not used!!
Big business pays for electricity
according to how much they use. In order for this to occur, you need "smart
meters" installed. Smart meters measure electricity used by particular
consumers the way it is sold by generators to retailers; ie. in half hourly
intervals broken into 5 minute blocks. Profiling is unnecessary. If smart
meters are purchased in large numbers and installed for consumers, the
cost drops to about $60-75 a household. Spread out over 20-30 years; this
is mere pennies per household.
Why Does There Seem To Be So Much Industrial Action Now?
The old SECV made money from electricity
it sold. It then paid wages, did maintenance, put money into research and
development and serviced debt. The profits went to Victorian Governments
for hospitals, schools, roads, etc.
Now the profits go to shareholders,
most of whom live overseas. Maintenance used to be based on the preventative
model, ie: maintaining the system so that it did not break down. We now
have a risk maintenance model in which the system is run until it breaks
down and then repairs are made. While it plays havoc with security of supply,
it is much cheaper which means bigger profits for overseas shareholders.
The permanent workforce in the Victorian electricity industry has been
reduced by 22,000 because less frequent maintenance and hiring staff casually
cuts costs and increases profits in the short term. In the region covered
by Powercor, the permanent workforce was reduced from 20 to 3 workers.
Citipower reduced its permanent workforce from over 400 in 1996 to 32.
This is the main reason Citipower has reduced costs, not efficiency improvements.
Crucial maintenance work was either
downgraded, reduced or removed. Companies wishing to maximise profits have
an interest in replacing employee-based maintenance with arguably less
effective technology. The cost of the technology increases the value of
their asset base ensuring tax and pricing benefits. When the system fails,
naughty trees and feral possums are blamed.
Overseas owners of generators in
the LaTrobe Valley want to offload more workers to save money. This is
why industrial action is occurring. These actions are not only unfair to
workers but may put the community at risk.
There is no substitute for a permanent workforce that knows the industry. The breakdown of the system in Auckland that left New Zealanders literally in the dark for months was made worse by the loss of the collective knowledge of the system that went with retrenchment of much of the permanent workforce. The Kennett Government ensured that legislation governing the industry enables companies to provoke industrial action and pass the costs on to consumers. It is thus in the interests of Victorians to support workers in the LaTrobe Valley and prevent further erosion of quality maintenance in the industry.
What Can Victorians Do?
Electricity is an essential service. It is an integral part of housing, a human right protected under the International Covenant on Economic, Social and Cultural Rights.
PRIVATISTION OF THE ELECTRICITY INDUSTRY AND INTRODUCTION OF THE NEW SYSTEM ON 1/1/2001 SHOULD NEVER HAVE OCCURRED AND SHOULD BE REVERSED AS SOON AS POSSIBLE.
In the meantime, Victorians must
demand at a minimum that the Bracks Government:-
Introduces smart metering
BEFORE the introduction of full retail contestability
Ensures the new Essential Services
Commissioner gives as much weight in practice to stated social and environmental
objectives of the Bracks Government as to economic regulation. Duties of
the ESC must reflect these concerns. Environmental impact of the industry
must not be left to the Environmental Protection Agency in isolation from
the ESC.