The Californisation of South Australia's Electricity
by Bob Briton South Australians are presently bracing themselves for the full impact of a process set in motion in August 1993. In that year the Hawke Federal Government was handed the Hilmer Report, which laid down guidelines for the much-vaunted National Competition Policy. The consequences of this privatising, job-shedding, pro-business agenda are being felt every time a light switch or power point is switched on with only the prospect of worse to come as "deregulation" reaches its climax in 2003. The breakup of the publicly owned Electricity Trust of South Australia (ETSA), the sale or lease of its component parts and the State's entry into the National Electricity Market (NEM) in December 1998 were promoted by industry and Government alike as being the dawn of an exciting new age for consumers. Leverage in the campaign to divest the community of a major asset was gained by the fact that the economy was saddled with a debt of $10 billion due to the demise of the State Bank. Nevertheless, the talk was upbeat. The dream versus the reality Customers were to have freedom of choice with "smart metres" trawling the available sources for the cheapest power available. Private corporations were to be competing to deliver higher standards of service and "products" tailored to the specific needs of the consumer. Alternative power from renewable sources would be part of the free enterprise dream to be administered by the National Electricity Market Management Company (NEMMCO). A series of meetings of the Council of Australian Governments involving the Federal and State Governments in the 1990s saw all eastern States and South Australia (SA) sign up for a National Electricity Market. Just in case any of the States found the plan or the timeline unappealing, the Federal Government had and maintains the power to withhold the State's share of payments from a $77 million "competition fund". South Australia dutifully corporatised ETSA before carving up the utility for sale. Electricity generation was taken over by transnationals like giant TXU (or Texas Utilities), London-based International Power Plc's local unit Australian National Power, Origin Energy and its Canadian partner ATCO, and NRG Flinders. Major transmission lines were handed over to ElectraNet SA while local distribution networks continued operating under the name "ETSA Utilities" while actually being leased to Hong Kong Electric CKI. "Retailing" of electricity (i.e. buying electricity on the National Electricity Market, selling it on to the consumer and delivering the bill) was divided into two sections. The gas supplier AGL is a "regulated monopoly" in retailing electricity to householders. Though several other corporations (like TXU and Origin) are able to sell to bigger "contestable customers", AGL is the dominant force in this area also. A decade after those initial meetings of Ministers, the technocratic dream in South Australia has been replaced by a far more dismal reality. The cold hard facts are that the State Government can no longer guarantee an uninterrupted power supply, small consumers are paying significantly more for their electricity and are having to look at stopgap measures to cope. The knock-on effects throughout the economy and society are extremely worrying. This winter alone there have been more than 1,000 blackouts in South Australia. The average metropolitan blackout lasted 39.5 minutes while in rural areas it was 83.3 minutes. In remote areas it averaged 75.8 minutes. Spare a thought for the small communities of Kelly, Mt Hope and Uley South that have had 46 hours without power in the last two years. This new era of unreliable power has caused a boom in the sale of portable petrol and diesel-fuelled generators. One local doctor has taken this extraordinary step to prevent the loss of crucial information from his computers. Coopers Brewery is installing a co-generator to safeguard its supply and even that zealot for privatisation of the electricity utility, Hugh Morgan of Western Mining Corporation is said to be considering building his own generating capacity in response to the failure of corporate electricity. According to the Adelaide "Advertiser", the average householder has had an 18.4 per cent increase in electricity charges since 1996 and monopoly retailer AGL has signalled its wish to raise charges by a further six per cent in line with increases in the CPI. Householders' losses have been relatively light ... so far. The new arrangements and their full impact are being introduced in stages or "tranches". The first tranche, which included the big consumers like the vehicle manufacturers, quietly accepted contracts from retailers that lowered their power bills. On July 1 this year, customers using over 160 megawatt hours or around $20,000 worth of electricity were the next to sign contracts or face the prospect of buying power on the "spot market" (more on this later). Caught in this net were Councils, government Departments, schools, hospitals, charities, providers of age care and around 2,700 smaller businesses. The Flinders Medical Centre will have its $1.3 million power bill increased by $390,000. A high school that spends $20,000 on electricity will now have to pay $26,000. Increases ranged from 30 per cent to 100 per cent. Councils are considering a significant rise in rates; a schooner of beer may go up by as much as 15c as the increased costs are passed on. A community owned hotel in Renmark is facing the prospect of laying off some of its 80 staff. Port Adelaide Central Mission wrote to the Premier Mr Olsen about their contract, which contains a 45 percent increase for its two larger nursing Homes Wesley House at Semaphore and Westminster Village at Grange. The charity is up for an additional $65,000 annually. Bedford Industries, which employs 450 people with disabilities, may have to abandon plans for expansion in light of a $70,000 hike in their electricity bill. The next "tranche" to be given the deregulation treatment will be the 270,000 households. The South Australian Independent Industry Regulator, Mr Lew Owens can find nothing illegal about the huge imposts placed on consumers in July this year and is reported as saying that he would not be surprised at similar increases in January 2003 when households shed their "non-contestable", regulated status. At that stage private consumers will have to sign a contract with a retailer, be that AGL or one of its competitors. Not even the most incurable pro-boss sources are game enough to predict benefits to South Australian households. The thief loves a noisy market (Persian saying) How has this been allowed to happen? What exactly is the cause? Who is benefiting from this disaster? How can it be fixed? Where are the regulators, the government "watchdogs" when you need them? These are all valid questions, indeed the burning questions of the hour, but the answers are not forthcoming. The operations of the National Electricity Market are complex, even arcane. Some key facts will, however, give some clues as to the identity of the major winners in the South Australian case, which the "Advertiser" has called "the case of the disappearing profits". The National Electricity Market has its origins in a process that predates deregulation. The idea is to connect "megawatt rich" States like NSW and Victoria with South Australia and Queensland, which have very little surplus generating capacity. "Interconnectors" were built to link the grids. The brave new world of privatised power converts this situation into a national electricity pool in which electricity is, in principle, priced according to laws of supply and demand. This means that on the control panel at a generator like the ones at Pelican Point or on Torrens Island a new and very important piece of data flashes and fluctuates. It is the current selling price or "spot price" of power. The operator of the generator may decide to supply electricity at that rate or withhold power from the network, wait five minutes for the consequent downturn in supply and rebid when the price goes up. The price might be $38 per megawatt hour (MW/h) or $4,000 MW/h! At the moment, the maximum price generators like National Power, TXU, Origin Energy et al can charge is capped at $5000 MW/h. This bar is to be raised to $10,000 MW/h in 2002 and, after January 2003, there will be no cap at all. Prices have averaged $81.40 MW/h last summer and have nudged the maximum $5,000 MW/h on a number of occasions. (N.B. $38 per MW/h is 3.8 cents per kilowatt hour, $5000 MW/h is $5 per KW/h.) On one particular occasion last November whole suburbs, supermarkets and shops were plunged into darkness as local generators dumped local consumers and directed their capacity to Victorian clients. A sudden industrial dispute had caused a crisis there and South Australian generators strained the distribution network in the rush to cash in on the $5,000 MW/h on offer. South Australians sat around candles while their electricity suppliers went sniffing for profits. Their hunt was highly successful that week Northern Power's income went from $278, 564 in the week ending October 26 to $10,618,619 for the week ending November 2. Other generators made similar gains. Democrats Deputy State Leader Sandra Kanck has revealed that generators brought in $84.1 million in a single week in January this year. Remember, also, that these same monopolies maintain that alternative energy sources like solar and wind power are too expensive! Fascist electricity? After the Fascists' "March on Rome" in 1922, Mussolini made the following announcement: "We must take from the state those functions for which it is incompetent and which it performs badly. I believe the state should renounce its economic functions, especially those carried out through monopolies, because the state is incompetent in such matters..." He proceeded to take over control of the power generating capabilities of the municipalities, forged them into a network and promptly handed it over to his powerful corporate backers to further build their fortunes. Sounds familiar? Opponents of this type of treachery and there were many were simply jailed, exiled or worse. Organisers of the modern welfare state for the wealthy don't have this facility and, in order to get around what limited democratic rights do exist, they prefer to confuse the process instead. The case of South Australia's electricity crisis is a classic. Nobody is to blame and nobody fully understands the problem, it would seem. Typical of the reactions from generators to the growing unease in the community is Ed Metcalfe who manages the Pelican Point power station for National Power. He was responding to a claim from retailer AGL that generators were the cause of high contract prices because of a lack of generating capacity in the State: "We are not the bad guys here. We are not screwing SA businesses". He claims that Pelican Point was selling power at 4c a KW/h while households were paying about 14c KW/h. "You might care to turn the spotlight on to the 10c (difference), as opposed to the 4c", he told the "Advertiser". Retailer AGL says further that customers are having trouble adjusting to paying the full cost of transmission and distribution. In any case, AGL is claiming problems of its own. It has had to divert $80 million in emergency funding to its NZ subsidiary, Natural Gas Corp. Clive Armour, formerly a General Manager/Director of the South Australian Gas Company, then Managing Director of ETSA Corporation and now Managing Director of Canadian-based ATCO Power says that the State government wasted its $115 million on consultants for the privatisation process. What is really needed is government assistance to establish an alternative gas supply. Cheaper, more ample generation would follow like night follows day! The State Opposition Labor Party maintains that generating capacity in the system was deliberately run down and interconnection projects and upgrades were delayed in order to ensure a tight supply situation and high prices in the short to medium term for private utility operators. A related argument used by the Government when referring to future solutions goes that upgrade work to the Heywood interconnector, the completion of the Riverlink interconnector, the increase in capacity of Texas Utilities' Torrens Island power station and the inclusion by AGL and others of gas turbine "peaking plants" will save the day. Ignored in these arguments is the fact that "peaking plants" only produce very expensive (and dirty) power at times of extreme demand. Also absent is any reason why this increased capacity won't continue to be withheld to boost prices or go elsewhere when prices so demand. Others maintain that SA already had sufficient capacity for its own needs but not for those of the National Electricity Market casino. They aren't convinced that increased use of household airconditioners, for example, is to blame for the current crisis. There is a sad sidelight to this detail of the saga. While Western Mining Corporation consumes 10 per cent of the State's entire electricity generating capacity to run its uranium mine at Olympic Dam, elderly residents were putting their health at risk by sweltering in the extended heatwave conditions last summer. They were too frightened to turn on their airconditioners and thereby bring the electricity network crashing! For all the current problems, figures like State Treasurer Rob Lucas and his counterparts in other States like NSW insist that the market is not working as it should because of the meddlesome caps on prices and other elements of regulation in the system. Still, it must be said that relatively few, for whatever reason, are calling publicly for the deregulation "Full Monty". As previously mentioned, the Government "watchdogs" are aware of recent developments and have made pronouncements on it. Unfortunately for smaller consumers, they seem more like spectators than "watchdogs". The State Independent Industry Regulator (SAIIR) has the stated functions of regulating prices and monitoring compliance and overseeing improvements in service and supply. So far, while noting the pricehikes, the SAIIR has done nothing to intervene. He has suggested a change to the bidding system which would prevent generators rebidding for the supply of electricity within three hours of a previous bid (they currently have to wait five minutes). He is worried about the lifting of the price cap of $5,000 MW/h for generating companies. But that is all. The Australian Competition and Consumer Commission (ACCC) is the "watchdog" for the entire National Electricity Market. In the June 13,2000, issue of "The Bulletin", Deputy Chairman of the ACCC Allan Asher has the following to say, "...industry restructuring and competitive electricity markets are increasingly a global trend. The result is an industry where commercial incentives drive management decisions and new investment, an industry that contributes more effectively to economic growth and improves the well-being of customers". Don't expect the ACCC to be batting on the side of workers. The overseas experience Mr Asher has made a valuable point, nonetheless. We aren't the only ones suffering under these "reforms". From New Zealand, Great Britain, Chile, Venezuela, Russia and elsewhere we see reports of energy "crises". The problems are due to "shortages", "price controls", "environmental laws", the weather or "political instability". Every reason is given except the one that can make sense of the phenomenon, the global system of profit. In a recent issue of the Communist Party of the USA's monthly magazine "Political Affairs", a series of articles sums up some of the US's experience with a particular focus on events in California. Californians are further down the road currently being travelled by South Australians. They have already experienced rolling blackouts in spite of the existence of adequate generating capacity. They have had to bail out the first of the companies to go under in the new privatised electricity market. The resultant State debt is valued at $300 per person in California and their electricity charges are to be increased into the bargain. Meanwhile Reliant Energy has made a remarkable comeback, increasing profits by 600 per cent in recent months. Commenting on the complexity of the blame game in California, "Political Affairs" quotes Mas'ud Zavarzadeh who said the device is "a strategy by the ruling class to 'dismantle the theoretical foundation of a coherent knowledge of capitalism as a totality'. In other words, to prevent an understanding of capitalism as a system where one part affects another. "By reading the effects of capitalism as isolated and 'unique' instances that cannot be reduced to a single cause, this logic teaches that the unregulated private consumption of social resources is not connected to the objective basis of capitalism in the exploitation of labor, but rather that it is the natural condition of human beings. The purpose of such a lesson is to erase the possibility of social and economic justice." Marx is quoted in relation to the current situation "...the epoch which produces this standpoint, that of the isolated individual, is precisely that of the hitherto most developed social (from this standpoint general) relations". It is the private ownership of the means of production the transformation of the public need for electricity into a privately owned commodity that is bought and sold on the market that has caused the energy crisis. This goes for California as well as South Australia. People will struggle For all the bad news about the worldwide trend towards the monopolisation of social resources, the US experience offers some reasons to be hopeful of a fightback. Trade union peak council, the AFL-CIO, has led a campaign involving "rolling demonstrations" in response to the rolling blackouts plaguing the country. This, and other evidence of nationwide public resentment, has prompted even privatisation zealots like Federal Reserve Chairman Alan Greenspan to call for price restraint in the private electricity market. He should be worried. Seventeen out of 24 States that deregulated their electricity market are reconsidering their decision. Nevada has already repealed it. In California, legislators are being forced to consider a "windfall profits tax" and demands that $8.9 billion in overcharges be recovered. A recent measure in California gives the State the right to create a power authority and run power plants under public ownership and control. Australian Governments will continue to insist that "you can't get the toothpaste back in the tube". Like the GST, once it is unleashed workers have no choice but to adapt. The US labour movement is putting lie to statements of that sort at this very moment and it can't be very long before Australian workers take up this struggle also.