More lessons from US electricity debacle

by Bob Briton

The more civic-minded of Australia's planners should have heeded the 
warning signs three years ago when California's electricity system lurched 
into crisis. During the 1990s, economic "rationalists" were given free 
reign to transform the public electricity utilities of the eastern states 
of Australia into a National Electricity Market.

All-wise market forces would, step-by-step, replace charters from the 
public authorities as the guiding principles for the provision of this 
essential service. The US was the first to head down this path and has been 
the first to meet with its inevitable consequences.

California was the most widely reported casualty of the policy. Spiralling 
electricity charges, rolling blackouts, company failures and the loss of 
US$25 billion in Enron-style wheeling and dealing in just 15 months left 
the state's consumers bloodied and bruised.

Re-regulation was put back on the agenda in California and half a dozen 
other states to overcome the crisis. Policy makers in Australia kept their 
nerve.

Now there has been the spectacle of a blackout of unprecedented proportions 
across six states of the US and parts of Canada. It seems from early 
reports that relatively routine technical problems were beyond the capacity 
of the deregulated, interconnected, privately owned network to overcome.

The Bush administration is now calling for an upgrading of the network and 
more federal involvement in the running of the grid — though, no doubt, 
with the same profiteering corporations actually in charge.

The embarrassing observation is being made on all sides that, despite 
promises of huge private investment, the largest first world economy has a 
lot of neglected public infrastructure built to third world standards.

SA experience

And still the ideologues in Australia are standing firm.

South Australians have already experienced increased numbers of blackouts 
since the ETSA utility was privatised in 1999 and, despite the election 
promises of the Rann Labor Government to fix up the state's electricity 
woes, it seems that SA is headed for more supply chaos this summer. A 
number of classic "free enterprise" causes are behind the predictions.

Electricity Week reported recently that a number of generators are 
not listing their capacity with the market co-ordinating company, NEMMCO. 
That is because, while consumers pay record high prices for their power, 
wholesale electricity prices are currently among the lowest on record at 
around $22MW/h. The companies involved are waiting for summer with its 
increased demand when prices can be forced up to something closer to the 
maximum limit of $10,000MW/h.

"The politics of that is that they are probably waiting to be called in by 
NEMMCO and bid at the highest possible price", magazine publisher Laurel 
Fox-Allen told the media last week. 

Increased demand and a lack of new generating capacity in New South Wales 
are other likely reasons for generators to be coy about their capabilities.  
At the same time, access to any scraps of surplus capacity in the NSW grid 
will be denied to South Australians because of a tense struggle between two 
powerful industry players. NEMMCO has decided to allow the Murraylink 
interconnector — running from Red Cliffs in Victoria to Monash in SA — 
into the club that is the National Electricity Market at the expense of the 
projected SNI interconnector. SNI has been on the drawing board for six 
years now and was designed to link SA to the NSW grid.

It appears that Transenergie — the operators of Murraylink — convinced 
NEMMCO that the SNI scheme would duplicate part of its operations and 
introduce an unwanted rival for its facility. So much for competition!

The granting of "regulated" status to Murraylink (and the overturning of a 
previous decision to grant such status to SNI) means that Murraylink can 
also pass on transmission costs of around $12 million a year to consumers 
in Victoria and SA. The ACCC has given its stamp of approval to the 
arrangement.

SA Energy Minister Pat Conlon is said to be fuming at the decision, which 
leaves South Australia in a vulnerable situation as the weather heats up 
and the air-conditioners are switched on.

Still, it would be silly to be surprised. As US experience can attest, 
financial analysts and not engineers are in control of the show nowadays 
and infrastructure is built — not where it can assure reasonable prices 
and reliable service — but where the juiciest profits can be made by the 
strongest contenders.

Other signs of stress are appearing in the operations of the various 
corporations in charge of delivering our electricity. In SA a bill for $147 
was delivered to a half-built, unoccupied house. Elsewhere, an 84-year-old 
North Adelaide woman had her bill rise from $64.41 in September to $440.74 
in March.

She had resorted to switching off her fridge and eating raw or canned food 
to cope with the huge bill. When her friend contacted AGL for an 
explanation, it seems that the elderly resident had received an estimated 
account.

AGL explained that this is done when company employees are unable to access 
the metre. The problem, however, is that the estimate is made from the 
average consumption of residents in the area, not the particular customer's 
own previous (and very frugal) consumption. Such an estimate would have 
brought the bill down to around $70 in this instance. "There is nothing 
wrong with the estimating system. AGL is acting in accordance with the 
retail electricity code", company spokesperson Jane Counsel said.

In Victoria, the Financial and Consumer Rights Council has revealed that 
Victoria's new electricity sales system is still having problems more than 
12 months after customers were able to choose their own retailer from 
between TXU, AGL or Origin Energy. Householders switching their electricity 
company are waiting up to eight months to receive their first bills.

Ms Adams was a TXU customer before moving to Wyndham Vale and wanted to 
stay with the company. For some reason, because her new neighbourhood is 
mostly served by Origin Energy, the changeover took a long time. "They 
couldn't even tell me over the phone what I owed, so am I now going to get 
a bill for $700?", she wonders.

Many consumers are getting into difficulties and finding it hard to budget 
for the mounting — but elusive — electricity bill. It is not that long 
ago that companies were promising a brave new world of "smart metres" that 
would automatically sniff out the best power deal on offer from fiercely 
competitive rivals. The reality is shaky supply and poor service from 
retailers offering the same expensive product.

Meanwhile, AGL celebrated a 30 percent jump in profits in the past 12 
months by buying Victoria's largest power generator, Loy Yang. Australia's 
largest energy retailer and the Tokyo Electric Power Company will own about 
35 per cent each of the once publicly owned facility with the Commonwealth 
Bank and the Great Energy Alliance Corporation sharing the rest.

Origin — Australia's second largest electricity retailer — posted a 38 
per cent increase in revenue to $3.35 billion, which helped lift net profit 
25.9 per cent to $161.95 million for the 2003 financial year.

All in all, these are happy days for companies already involved in the 
National Electricity Market but very gloomy ones for consumers, especially 
cash strapped working class ones. What is more, it is surely only a matter 
of time before a New York style collapse into darkness is added to the 
"free enterprise" mix.