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COPYRIGHT 2005 Australian Consumers' Association
The last few years were meant to be good for consumers when it came to electricity. A series of big changes to the power industry, including the break-up of the big old monopoly power companies, electricity becoming a traded commodity, and consumers being offered electricity retail competition so they could shop around and switch to the best deal were all meant to result in lower prices and better supply.
But have these changes really delivered households reliable power for a reasonable price?
Consider the following: in 2003 in South Australia, consumers faced a 30% increase in their electricity bills (an average of $218 a year)--a move that pushed many low-income households there into financial distress. Nearly 20% of people seeking assistance from welfare agencies did so primarily because of high electricity bills, and over 80% of all welfare clients had their financial problems compounded by these high power bills. A welfare report found people skipping meals, pawning possessions or showering every second day in order to manage and pay their higher power costs.
In the hot summer of 2000 in Victoria, consumers lost out in a big way on supply when severe restrictions were placed on the use of electricity, 18 years after the last major blackout had taken place. And in March 2004 the threat of disconnections for non-payment of bills seemed so dire that the Victorian Council of Social Service warned that up to one in four Victorian households could have their electricity and gas services cut off when the state entered full deregulation, forcing the government to extend the laws for consumer protection to at least 2007.
In Queensland, a series of blackouts in early 2004 led to an official government inquiry that found parts of the state's electricity infrastructure had been run into the ground and not adequately maintained.
What's more, Australia-wide, most experts agree electricity prices are heading in just one direction. Up.
So how did it come to this? To understand what's going on--and to find out what you can do--you need to know a bit about what's gone on with power over the last 10 years.
A BRIEF HISTORY
In the early 1990s, competition fever gripped federal and state governments. Electricity was a prime target for reform, boosted by a belief that the then state-run electricity monopolies were 'fat', with too many workers, and were endowed with too much 'goldplating'--where the engineers running the plants put in place needlessly expensive contingency plans for every conceivable emergency.
Around the same time, state premiers began discussing a national electricity network covering NSW, Victoria, Queensland, SA, Tasmania and the ACT. Plans were made for a 'national grid' that would create better access to supply by linking power generators from the eastern and southern states.
The two goals soon became intertwined. Governments, with varying degrees of enthusiasm, began breaking up the monopolies, separating the power industry into discrete companies that supplied generation, transmission, distribution or retail. The aim was to increase competition particularly in the generation and retail sectors. The newly minted power companies were also required to pay their administering government 'dividends'. Two states, Victoria and SA, took this reform process even further by privatising their industries entirely, selling off their new power companies.
Power was to be traded in a National Electricity Market (NEM). The model chosen for the generators to sell electricity units to the retailers was a compulsory wholesale 'pool', based on the UK model of the time. All generators were to sell into the pool and receive the same 'spot' price at any given time, with the lowest-price bid by a generator that can meet the demand (in five-minute intervals) setting the price for the rest.
The rules, or National Electricity Code, by which this operates currently cap the highest wholesale price for which electricity can be offered at $10,000 per megawatt hour (MWh, or 1000 kilowatt hours), though in 2003 the spot price was less than $40/MWh for around 90% of the time. In theory, market pressures ensure that energy consumers get the best price possible. But keep in mind that huge wholesale price range--it becomes important later....
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