energy market power lines

The ACCC’s report on the electricity market illustrates how, when the history of neoliberalism is written in Australia, the energy sector will be emblematic of both its successes and failures.

The report sees the essential causes of high electricity prices in recent years as market-dominant companies (including via vertical integration), an inadequate regulatory framework that has been gamed by participants, and product ranges and information designed to hinder rather than help consumer choice. To these structural problems have been added more recent, sector-specific issues: the lack of a coherent climate action policy for the last decade (due to the climate denialism of the Liberal and National parties, but the ACCC doesn’t say that), the age of existing coal-fired power assets, gas exports and flawed subsidies for household solar.

None of this is a staggeringly novel insight.

The creation of the east coast electricity market from the old government-owned state model of the 1970s and early 1980s came in two stages. First, electricity generation was corporatised and structurally separated — and in Victoria and South Australia, later privatised. Then, in the 1990s, the National Electricity Market was established.

The transition from the old government model to the new market model initially yielded substantial benefits. As generators, distributors and retailers were separated and corporatised, they began cutting back on the public-sector feather-bedding that characterised the government-owned sector and finding efficiencies. The gold-plating and engineering-driven capital programs of the government era — there was no competition to deter them, and prices were regulated — were halted. Power prices fell in the 1990s, both for households and especially for business users, who had for years been subsidising residential electricity supply.

But the conditions for the current era of corporate dominance and overcharging were also being prepared. Because regulation of prices was now curbed, governments realised their electricity assets were highly valuable as sources of revenue, and pushed them to pay massive dividends into state coffers. As it turned out, the NSW and Queensland governments were more rapacious than shareholders in privatised Victorian and South Australian assets when it came to demanding gouging. And the era of structural separation gave way to an era of mergers, that led to most state generation markets being dominated by two providers, while vertical integration eventually entrenched the market power of AGL, Origin and Energy Australia. The NSW and Queensland governments made this worse by consolidating generation assets (in NSW’s case, prior to sale) rather than using them to provide competition.

And while companies usually complain of over-regulation, the Byzantine regulations of the National Electricity Market and of state-based price regulation schemes — especially, as the ACCC notes, the appeal mechanisms — provided a playing field tilted heavily in favour of large corporations.

The arc of the electricity sector since the ’80s matches the broader arc of neoliberalism in Australia: it initially delivered wins for consumers and the economy, but also paved the way for ever-more dominant companies to exercise market power in their own interests, at the expense of consumers and other businesses, with little in the way of regulation to stop them. The early gains derived from reform have been lost in the gouging of companies wielding massive market power. They’ve even used a tactic developed in other “regulated” sectors like telecommunications and private health insurance: use the pretence of “consumer choice” to confuse consumers by offering them an array of confusing and literally incomparable products that prevent consumers from making an informed choice about which member of the oligopoly offers them the best deal.

The idea pushed by the Greens, Labor and Coalition backbenchers, that some form of royal commission is needed for this, is childish and pointless. There’s no mystery to be solved here, no scandal to be uncovered — it’s all happened in plain sight. Energy companies have done what so many other companies in other sectors have done: used the pro-corporate paradigm of neoliberalism to secure as much power as possible and wield it against consumers and other businesses. It’s the entire story of Western economies over the last 30 years.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey

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