Media Release
13 September 1999
From: Energy Action Group Inc
PO Box 136
North Melbourne 3051
Tel 041 736 2709
Paying a Big Price
Privatisation and electricity prices in Victoria
A new paper released today argues that the high sale proceeds obtained by
the State Government for the electricity distribution businesses were
achieved by locking in higher prices to consumers.
The paper titled "Paying a Big Price: Privatisation and Electricity Prices
in Victoria" warns that rural electricity distribution businesses have
significant financial incentives to run down maintenance of their systems.
Author of the paper and current President of the Energy Action Group, Ms
Andrea Sharam said that electricity customers needed to understand the
privatisation deal in order to lobby for a better deal out of the current
electricity pricing inquiry, to improve quality of supply, and to minimise
harm to the environment.
Ms Sharam said
"The Kennett Government has guaranteed the Distribution Businesses earn a
minimum rate of return of 10.9%, double the going rate for comparable types
of investment. This level of profitability is simply monopoly rent, not
efficiency gains, and is being funded directly out of customers' pockets.
Energy users are now submitting to the review of distribution pricing being
undertaken by the Office of the Regulator-General. Users are expecting that
the rate of return allowed in substantially lowered."
The Energy Action Group says that the same asset write down that deferred
the eventual demise of the traditional rural cross-subsidy was providing a
strong incentive for Powercor and Eastern Energy to minimise maintenance in
order to invest in new fixed capital assets.
Ms Sharam said
"New assets are great but they are coming at a high cost to rural consumers.
Moreover, they are coming at the wrong time. The relationship between prices
and the asset base distorts investment decisions."
The Energy Action Group believes that rural interests were at risk of
marginalised in the pricing inquiry, suggesting that rural participation in
the inquiry processes was too low.
"For example", Ms Sharam said, "the inquiry may determine that we move from
the current postage stamp pricing system (uniform pricing within each
distribution business), to full cost reflective pricing. If the later were
to be adopted, users in remote areas of Victoria will be in for a hiding -
price wise."
The financial relationship between pricing and asset management also
provides greater than normal incentives to promote growth in consumption. Ms
Sharam said that consumption of electricity had in fact grown at a greater
rate than anticipated and was delivering significant windfall profits to the
distribution businesses.
"It is of course, an environmental nonsense, not just in terms of the
burning of brown coal and greenhouse gas emissions but in the push for more
hydro generation. Basslink will if things run their current course open up
the Tasmanian dams issue again.
The Energy Action Group Inc is a consumer and environmental utility advocacy
service for households and small business. The organisation has been
advocating for more than twenty years and is supported through membership.
For copies of the paper or further information, please telephone
Ms Andrea Sharam on 041 736 2709
Or email [EMAIL PROTECTED]
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