“Yesterday at Nepean Hospital a man opened his power bill from Integral Energy – $1,400 for a four-bedroom home. A man, his wife and his children, struggling to pay it.”
— NSW Premier Barry O’Farrell
The decision of the NSW regulator, IPART, to approve another round of electricity price hikes this week has prompted more hysteria from the media and politicians about electricity prices. But the outrage is constructed squarely on the ignorance and short-term memory of the community.
According to IPART, the customers of Country Energy, who face the highest electricity prices, are looking at average power bills of $1747 a year after the current round of increases, or $33 a week. Urban customers are looking at around $26 a week.
What does that really mean for household budgets? For high-income households, according to a study prepared by ACTEW AGL late last year, electricity prices account for just over 1% of the disposable income of NSW households, and a tad more for Queensland households. For middle-income households, its about 3%. Only for the lowest 20% of households are electricity prices a significant part of disposable income: just under 7%.
Those facing real stress from electricity price rises are therefore those on the very lowest incomes. Not the sort of people to whom the media and politicians typically try to appeal — indeed, they’re the ones more likely to be the target of welfare crackdowns and pious back-to-work campaigns by puritan Prime Ministers.
Here’s some more context for households in NSW: in the December 2010 quarter, the contribution of electricity prices to the CPI result in Sydney — where it was highest out of the mainland state cities — was less than that of increases in the cost of education, holidays, hospital treatment, clothing, alcohol, tobacco, takeaways, eating out, fruit and veg, meat and seafood and communications – not mention significant costs like rent or mortgage payments.
According to the AGL study, both NSW and Queensland residents are now paying, in real terms, what they were paying in the 1980s for electricity. Of course, AGL is biased. Rod Sims, the head of IPART, reports a similar story: electricity prices fell in real terms in the 1980s, and only recently began rising. And if you don’t believe either of them, Ross Garnaut says the same thing. And all this in a period in which real incomes are rising quickly, even for low income earners, including pensioners. As Garnaut notes, average weekly earnings also consistently outstripped electricity prices since 1993; only since 2006 have the latter outrun AWE.
Low income households are still paying less for electricity than if prices had matched the increase in disposable income since 1998; if prices had kept pace with income for high income households, they’d be 20% higher than currently.
According to Sims, electricity prices are highest in WA and SA. But in the West, prices had until 2008 been falling in real terms since the mid-1980s; they’re still lower than they were in 1986. In SA, they rose for the first half of last decade, but then fell, and have only recently resumed growing. And as Garnaut points out, we’re still paying about the same as the Americans, and much less than many Europeans, for our electricity as a proportion of GDP per capita. Only the Canadians pay less.
If NSW and Queensland voters are particularly worried about higher electricity prices, they should change their minds about opposing privatization. As Garnaut notes, in Victoria and South Australia, the gold-plating and over-investment characteristic of the capital investment in the government-run NSW and Queensland systems – which drives two-thirds of the price rises — is absent due to private ownership.
They should also demand their politicians stop stuffing around and introduce a carbon price, enabling the dumping of the Renewable Energy Target. If you believed much of the media coverage, the RET, which is backed by Labor, the Coalition and the Greens, all for different reasons, is the only factor driving up electricity prices. According to Garnaut, it’s responsible for only part of the 20% of price rises driven by generation costs. The trouble is, the RET is a rip-off: it’s far less efficient at reducing emissions than a carbon price.
Judging by O’Farrell’s bizarre “Nepean Hospital” statement, the chances of politicians climbing down from their electricity hysteria look pretty remote. O’Farrell reflexively piled every political cliché he could into his statement: the hospital, the kids, the struggle to pay bills — although it begged the question of why someone was at a hospital to open a power bill. Perhaps the power price panic is so great in NSW they now have dedicated A&E facilities for people who may collapse opening their bills.
The more important point is that if Nepean Man had a quarterly electricity bill of $1400, that means he’s using about four times more power than average household users. Perhaps he’s got a small aluminium smelter in his backyard, or running a cloud computing facility from home.
Then again, the idea that the only means open to people to seriously reduce their power bills is to cut their consumption is entirely absent from the rhetoric of politicians more interested in exploiting an issue than sensible policy. Especially one like O’Farrell, who opposed electricity privatization and who now opposes a carbon price.