Thursday, May 21, 2009

20% Increase Indicates Failed Management

It’s not likely that anyone will welcome the news that electricity prices are set to increase by 20%, which is a result of the combined effects of determinations by the Independent Pricing and Regulatory Tribunal in New South Wales, and the national regulatory body, the Australian Energy Regulator. The price increases have been deemed necessary to reflect the increased costs of producing, purchasing and retailing electricity, including an increase in retail margins. Nobody is seriously denying the need for price increases, but there is certainly criticism of the circumstances which have brought about that necessity.

Of the total price increase by far the largest chunk is the federally mandated increase in network charges, which according to the tribunal are necessary to fund improvements in network reliability. In other words, the money is needed for the maintenance and upgrading of the physical network infrastructure. This is where the criticism is directed, because it would be reasonable to expect that such maintenance, upgrading, and expansion should and would have been provided for from past earnings. But the truth is it hasn’t been.

Instead, over the past 14 years, the energy providers in New South Wales have delivered to the government $11 billion in dividends, which has disappeared into consolidated revenue in an effort to keep the budget in the black. Even that hasn’t been successful, given that the State Budget was plunging towards deficit well before the Global Financial Crisis began to wreck the economy. Instead of those dividends being appropriately invested into future capacity, they have been squandered on recurrent spending, and many would say government wastefulness.

So now, somebody has to pay for the system to be modernized and expanded to provide for reliable electricity supply into the 21st Century, and it seems that it’s you and me who are once again left to pick up the bill. The State Government was desperate to avoid the need to spend big money on upgrading the infrastructure by selling it off, and hoping that private investors would do the job. But that process was derailed in a cloud of messy politics, and selling any or all of the industry now while the financial markets are weak is not likely to produce a worthwhile return anyway. In any event, it is clear that the people of New South Wales are opposed to privatization anyway.

So, it would appear that we are stuck with the prospect of paying more for our electricity in the future, to pay for the recklessness of the past. But, given that the Government has benefited so handsomely from those special dividends for so long, isn’t it only fair that the Government should chip in to pay for the needed infrastructure? Having extracted those billions from what is a public enterprise, surely there is a responsibility to put something back into it, rather than simply jack the prices up and slug the consumer. A 20% increase is not only unfair to the consumer, it is also an indication that something has gone very wrong in the way things have been managed.

Now, more than ever, it is the role of government to provide for the common good. I know that this brings us around full circle, and returns to the old fashioned idea of public infrastructure being paid for the public purse for the public good, and that notion does seem to have gone way out of fashion over the last couple of decades, but in the light of the current economic situation, and the neo-Keynesian policies of governments around the globe, and the call for nation building programs to both boost the economy now and lay the groundwork for recovery down the track, surely this is a philosophy whose time has come. Or I should say, has come back.

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