Power to the people

Karen Kissane asks if ordinary people will benefit as promised from the splitting and sale of Victoria’s power system.

DIENEKE WALKER got a warm letter from Citipower when it took over the electricity supply to her home last October. She was a “Dear valued customer” and her power was to be delivered in “an efficient, professional and caring manner”.

The owner of a small business in a different Melbourne suburb was not so lucky. Her new power company merely sent her its first bill, addressed to “Dear Sir,” along with a demand for a $1700 security deposit. Failure to pay, it said, would result in disconnection without further notice. Such are the vagaries of life after the death of the SEC.

The five new power companies into which its retail arm has been divided are meant to be like gladiators in the ring – pitting their ability against each other, fighting for acclaim in the form of higher profits and better services. But the game is rigged, at least until the year 2000; it is only then that ordinary householders will be able to choose which one they will use. Right now each company has a monopoly in its own local area, a captive market. The businesswoman who got the letter of demand could not vote with her feet and switch to Citipower. “There was nothing she could do about it,” says Ms Walker, who heard the story in her work as a policy officer with the Consumer Law Centre.

Big companies will soon be able to win cheaper power deals by playing suppliers off against each other; in fact, suppliers will probably go all out to win them as customers. But, even after the household market is freed in 2000, will power companies bother chasing small customers when the big money is with commerce and industry? What will the free market do for little guys? Or should the question be, what will it do to them? Dr John Ernst, associate professor in the department of urban and social policy with the Victoria Institute of Technology, says they will face higher power bills, less willingness to negotiate if they run into trouble with payments, more environmental problems and many more disconnections. Privatising the power supply, he says, “is the reverse of the Robin Hood principle. It’s stealing from the poor to give to the rich”.

Dr Ernst spent four years in the UK researching his book, The Social Impact of Public Utility Privatisation and Regulation in Britain, recently published by Open University Press. He says: “People will say to you, particularly in business and consultancy forums and bodies like the World Bank, that privatisation is an outstanding success. You have to ask, by what criteria? “Usually it’s by the amount of money retrieved from the sale, the amount of foreign investment it’s brought into a country, whether big business got lower power prices, whether the industry became more efficient – its success is looked at in terms of how many people have lost their jobs. Very rarely is the measure in terms of ordinary consumers, particularly those on low incomes. If you used those criteria, there wouldn’t be a privatisation in the world which was completely successful.”
Dr Ernst says that in Britain, power prices went up, not down. One academic estimated bills are 25 per cent higher than they would have been if the state had kept its monopoly. After water was privatised, some households’ bills doubled or tripled.

Officially, power disconnections in Britain have decreased, but this does not reflect what is actually happening, he says. People who had trouble paying bills were forced to buy smartcards that entitled them to the use of a certain amount of power; now they disconnect themselves, sitting at home in the cold and dark if the card runs out and they have no money to buy another that week, or that month.

Meanwhile, the British Medical Association has expressed concern that an increase in the number of water disconnections has revived diseases that had all but disappeared, such as typhoid and dysentery.

“Competition is being promoted as all-good, but it can have adverse effects,” Dr Ernst says.

Where, in all this, is the potential for a better deal for ordinary Victorians? The new companies, the Government argues, should respond quicker to calls for service, be more flexible about payment and offer energy-efficient programs. The Treasurer, Mr Stockdale, predicts that prices will probably fall below the ceiling that the Government has put on tariffs until 2000.

Dr Michael Porter is an economist with the Tasman Institute, one of the consultancy groups that advised the Government on reshaping the industry. He believes Victoria’s privatisation will work much better than Britain’s. There, he says, the power system was sold off to two big companies, too small a number to force real competition; the results of its water privatisation are clouded by the fact that Britain had to upgrade to European Community standards for its water
supply at the same time as it was sold.

“The reason for setting up five distribution companies – we originally explored the merits of three – is solely from concern for household customers,” he says. “This way, if there is one mover and shaker, it will drive all prices down and others will have to match it.” Why should they match it when their domestic customers have no choice but to stay with them anyway? “There are plenty of players who will find it in their interests to drive the process of change.”
But that has not yet happened in New Zealand, according to David Russell, chief executive of that country’s Consumers Institute. He told a Trade Practices Commission conference in Sydney earlier this year: “Many of the more than 40 energy companies are aggressively competing for large customers. Undoubtedly these are leading to the trimming of prices in this market sector. However, the real possibility then arises of energy prices increasing for small consumers who are still captured by the local supply company monopoly.

“While the opportunity exists to compete for the business of small users, many are not going to bother. The administration (involved) in dealing with thousands of small customers throughout the length and breadth of New Zealand is simply not economic. I have spoken to a large number of companies who all said they wouldn’t be interested in chasing the small users who live outside their geographic area.”
Price is not the only issue for ordinary Victorians. The old SECV tried to keep supplying homes unless payment fell severely behind. As a state monopoly, it was also free to be green; it tried to limit the demand for electricity and subsidised the use of renewable energy such as solar and wind power. What will happen to such priorities with private companies, whose main duty is to their shareholders, to profit and to developing the market? Gavin Dufty, a policy officer with the Victorian Council of Social Service, expects disconnections to increase dramatically under privatisation; he says they skyrocketed in the last 12 months of the SECV when it was under orders to run more commercially. In August ’93, 1882 Victorian households had their power cut off; in the same month this year, it rose to 2924. Of this August’s cases, 2012 were reconnected in the same name, which meant they were battlers, not bad debtors, Dufty says; the bad debtors were the 912 who skipped the premises.

“In this whole privatisation debate, one thing has been completely forgotten,” Mr Dufty says. “Electricity is one of the things you need to participate in society; it defines our standard of living, like education, health care, housing. Everyone needs light, hot water, warmth, a refrigerator to keep their food cold. With privatisation they are taking this need and handing it over to people who are totally money focused.” Environmentalists, meanwhile, are concerned that companies run for profit will be more likely to cut corners on problems such as emissions and discharges. In the US, California’s Pacific Gas and Electric Company has responded to the prospect of competition by slashing its spending on energy conservation programs by 64 per cent, or $100 million. And, says Peter Kinrade, of the Australian Conservation Foundation: “The industry’s sole focus will be on generating as much short-term income as possible, which means selling as much as possible at the lowest price possible, which means less emphasis on energy efficiency.”
Dr Porter, on the other hand, argues that if private companies are more efficient in their use of power, and the way they balance the load at different times, the environment will do better.

The negative side-effect that would be most noticed by ordinary Victorians would be power failure. John Legge, a research associate in innovation and entrepreneurship at the Swinburne University of Technology, does not oppose privatisation but he is worried about the breaking up of the state’s generators into six different companies.

The result, he predicts, will be the brown-outs and black-outs all too well known to Americans.

Mr Legge, an engineer, helped build stage one of the Hazelwood generating station. He says that in the US “whole states regularly brown out”. The private companies that hold local monopolies simply lower their voltage when their generators are not up to the task of, say, running thousands of air-conditioners on a hot day: “It’s very expensive to put in that extra bit of power that’s only used a few times a year. It’s not worth their while.”
He says that from a technical point of view, generation works best as a cooperating system, not as an array of competing generating stations. “It is the nature of the beast. The (new) English power system would have collapsed if the regulatory authorities had not just ignored the fact that the two power companies collude, talking to each other in ways that are technically illegal to make sure there are no sudden shifts in load.”
Dr Porter argues that this is not a problem: “We live in networks – televisions, faxes, phones. That means you need quality interconnections, not that everything needs to be in one giant monopoly.” Mr Legge says that analogy does not work; part of the telephone system can collapse without affecting other exchanges, for example, but one collapsed generator could topple the electricity system throughout the state.

Whether privatisation will bring satisfying new freedoms or a whole new range of problems, or both, only time will tell. One thing is certain: with a sale value today of $10 billion, the power industry, once gone from government hands, will never return to them.

First published in The Age.