Report: Consumers get short-end of Big Stick

Big Stick

New research from The Australia Institute has revealed the structure of private competition in the electricity sector is costing Australian households more than $200 per year.

As heatwaves across Australia heighten concern for high electricity prices as households try and stay cool, new research shows the problem in electricity pricing is structural and the prime minister’s proposed ‘Big Stick’ approach to breaking up electricity companies will likely exacerbate the problem, rather than fix it.

Senior Research Fellow at The Australia Institute David Richardson says reining in soaring electricity prices requires addressing the huge inefficiencies and wastes associated with privatisation — not just “symbolic tough-talk to a handful of CEOs”.

“Privatisation of the electricity industry has resulted in enormous increases in wasteful spending, including high-pressure sales tactics, excessive numbers of managers, and dizzying advertising and so-called ‘chase’ costs,” Mr Richardson says.

Related article: Energy companies to face wrath of Morrison’s Big Stick

“The annual cost of these economically wasteful activities adds up to $2 billion per year. These costs are passed on to customers in their electricity bill, leaving households over $200 worse off a year.

“The financial sector has also reaped huge rewards from power privatisation. In fact, the electricity industry now spends more on finance and banking costs than it does on the actual fossil fuels to power its electricity generators.

“Further fragmenting the electricity sector will see these costs increase as more players set up with their own advertising departments, duplicate management structures and so on.

“The productivity of electricity production has been dismal under privatisation, contrary to the promises of the architects of the competition model.

“The government’s phony ‘big-stick’ approach to reducing electricity prices is merely an attempt to manage the political optics of the crisis in the system, not address its true causes.”

Related article: Energy companies to fight Morrison’s Big Stick

Key findings of the report include:

  • Real output per employees in the electricity sector has fallen by 37 per cent between 2000 and 2018, due to the excessive allocation of ultimately unproductive labour to advertising, sales, contract administration and other activities associated with privatisation.
  • Productivity growth has been worse than for any other industry in Australia, completely contrary to the assumption that privatisation enhances efficiency.
  • The number of sales staff employed by electricity companies has grown almost 400 per cent since the industry began to be privatised in the mid-1990s and the number of managers has grown over 200 per cent.
  • Over the same period, the number of electrical tradespeople and other workers involved in actual production has grown just 21 per cent.
  • Electricity sector now spends more on finance and banking costs than the actual fossil fuels that power electricity generation.

Read the full report here.