The mess in our electricity supply industry (ESI) can be traced directly to the privatisation fetish. Continuing the Australian story for those Americans who see infrastructure problems in their backyard.

Tabled for general awareness.

STORY LINK

Why your power will go off again
By KENNETH DAVIDSON
Monday 14 February 2000

THE installed electricity generating capacity in Victoria, plus its limited access to power from New South Wales, is barely enough to meet Victoria's needs and obligations to South Australia.

Growth in electricity demand means blackouts and restrictions are inevitable next year unless somebody (probably the Government) is prepared to buy a lot of gas power turbines off the shelf from overseas to meet peak demand. Power generated from jumbo-jet engines is about 20 times that generated from base-load capacity.

The mess in the Victorian and SA electricity supply industry (ESI) can be traced directly to the privatisation fetish. Privatisation means that the impersonal operations of the market replace government planning in ensuring there is long-term generating capacity to meet future demand.

A mountain of economic textbooks extolling the virtues of the market cannot hide the fact that in Victoria no new base-load capacity has been built since 1992, even though demand has grown 20per cent.

In South Australia, Premier John Olsen decided a couple of years ago to block the building of a direct transmission link from NSW into SA because he wanted to maximise the sale price of the Torrens Island power station, which would have little more than scrap value if cheap power from NSW entered the SA market.

If Olsen had focused on the welfare of the state rather than the sale price of public assets, SA may have avoided the blackout last week, and industry could have looked forward to security of supply into the future, instead of the prospect of more crippling restrictions and higher-cost electricity.

Despite overwhelming public opposition, Olsen argued the ESI had to be privatised to reduce risk to the state. Then he sold the transmission assets (poles and lines), which is a natural monopoly yielding assured returns. The state retains the unsaleable generator assets, which embody virtually all the risks inherent in the SA ESI.

Yallourn Energy's chief executive, Mike Johnston, was quoted last week admitting the company had used hedging contracts to cap the losses from the shutdown of the generator associated with the continuing industrial dispute.

Under the rules of the electricity pool operated by the National Electricity Market Management Company, it is theoretically possible for a generator to make money out of a strike under conditions as existed in the national pool over the past month. In order to remove any suspicion that Yallourn Energy engineered the dispute with their workers or planned to profit from such a dispute, the Victorian Government must establish an independent inquiry that examines all the pool and contract transactions.

Until the shutdown of Yallourn Energy, NSW generators were able to meet the Victorian and SA production shortfall. In order to protect jobs in the Hunter Valley, the Carr Government encouraged NSW generators to maximise production rather than profit, and this had the effect of driving down wholesale electricity prices in Victoria. This led to complaints from Victorian generators that NSW generators provided unfair competition because they put jobs before profits, and that the level playing field (high plateau) could only be restored by privatisation.

But the NSW Government has the flexibility of a vertically integrated industry - losses from low wholesale prices can be offset by higher profits on distribution - an advantage that Victoria and SA gave away in the name of privatisation and competition.

The only sensible medium-term policy option left to Victoria and SA is to build new transmission lines to NSW as quickly as possible, and rely on NSW generators for growth in demand. Without that connection, the wholesale price of electricity in Victoria will drift up to the levels operating in Britain - which are double the prices operating when the SECV supplied our electricity.

And let's hear no more about how privatisation shifts risk from government to the private sector. Final responsibility for security of supply still rests with government rather than the foreign owners of Victoria's generators. All privatisation has achieved is to cut away most of the policy levers that previously allowed government to manage that risk successfully.
Kenneth Davidson is a staff writer.

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Comment:
Read the last paragraph again. Take care America.

Regards from OZ

-- Pieter (zaadz@icisp.net.au), February 13, 2000

Answers

Pieter,

Sorry to hear about your continuing power problems, especially with the hot weather. You seem to believe that this is somehow related to privatization and this has some lessons for the US. Our electric supply system is and has been been, for the most part, privately owned since electric power began. Our power grids were built with shareholder money, not government assistance. The stability and reliability of our system has been good, at least in part, because of the profit motive.

Until Australia is able to abandon its socialist government and break the stranglehold that labor unions have over the country, I'm afraid you'll only see more problems like this.

-- Jim Cooke (JJCooke@yahoo.com), February 13, 2000.

G'Day Jim,

Lots of differing opinions re: this issue. The noise is huge today. To be a fly on the wall. However, it isn't a socialist worker affair per se. For the first time in my political pro-active career I find myself on the side of the workers.

We embraced the 1990s privatisation thrust because of the convincing argument of equity to everyone with rural investment. It is turning out differently. Soon we will be asked to vote on lots more privatisation sales, ie Telstra. The noise is rising...

PS. I know we are very different to America, with only 18 million people in the same landmass. It gives the privatisation debate another dimension due to lack of consumers in most of it.

Regards,

-- Pieter (zaadz@icisp.net.au), February 13, 2000.

Far be it from me to suggest a Y2K connection here. I'm sure that you all have been having power problems for quite some time - no? Did you have such outages last year and the year before? Is there a prolonged drought that brought the already fractured system down? Or did this just begin recently? Can you show us a map of the area affected so that we Americans can understand the magnitude involved?

Gee, nothing about this in my local newspaper. Since I don't listen to Rather, Jennings or Brokaw anymore, maybe that is where it has been reported. Anybody? Any word of this on TV? ....sdb

-- S. David Bays (SDBAYS@prodigy.net), February 13, 2000.

I post on this board on Australia via installments about the power industry and the malaise caused by the 1990s privatization push. Please be reminded that I hadn't begun these 'power' posts. The original posts about this drew on a possible Y2K cause that I then contested by posting on the industrial relations and infrastructure reality.

This reality spilled over into reflecting about rural Australia to landscape the issues concerning Australians for Americans. I posted to bring a balance to the TB2000 board interests, and footnoted my posts with caustic reflection sometimes bringing a range of reactions of which some have been helpful to me.

I wish to remind Americans of the fastness of Australia and that the infrastructure of roads, telecommunication and power delivery isn't equitable or in parity. Since non-uniformity exists in our country questions about ourselves are being asked. This is great debate and your input is welcomed. Please be mindful of the huge potential of Australia and its people, a people becoming annoyed about the social engineering brought by strangers.

When Australia is viewed as a mine, a place to pillage, a nuclear waste dump at earth's end, and a country to abuse as a place for social global experimentation...well, then some of us rally to debate the issues.

The value of TB2000 is shown by this issue. You know about it through TB2000. Australia isn't well known about in an America that is more Euro-centric. But Australia knows an awful lot about America. We have a lot in common, not least being a controlled media. The truth is often quite different. For example, this power thing is not about intractable socialist labour. It's about being held to ransom by a global company and peonage. It's about global power holding our legislature in contempt. It's also about compassion, a thing missing as we forclose on rural Australia. It's about balance.

Regards from Down Under,

-- Pieter (zaadz@icisp.net.au), February 13, 2000.

Jim,

if you'll remember, the 1997 NERC report indicated that by this summer we might be down to about 10% reserve generation capacity -- less in some areas, and that 2006 we will be scraping the barrel.

The US power industry has been heavily regulated, but now is focusing on a period of deregulation. The indications are that generation capacity is being neglected since it seems to be much more profitable to buy and sell electricity than to generate it. As a result you have such things as Com Ed putting a series of nuclear plants on the sales block.

Moreover, a minor but significant fraction of power plants in the US rely on fuels other than nuclear, coal or hydro, e.g., some sort of petroleum is used as an energy source. This small fraction of the total capacity of the system is subject to disruptions, and to the generation of higher priced power in a competitive environment.

In this environment it remains to be seen whether the generating capacity will keep up with demand. My guess is that it won't, and that 2004 or 5 brownouts and rotating blackouts will be a way of life in Chicago and the Northeast during the summer. This is exactly the same situation they're facing in Australia today.

BTW, I don't believe the answer is to nationalize the industry or even to go back to increased regulation. I do believe that we will be in for power problems in the next decade, because it will take several years for the system to shake out.

-- rocky (rknolls@no.spam), February 13, 2000.

Pieter: "We have a lot in common, not least being a controlled media. The truth is often quite different. For example, this power thing is not about intractable socialist labour. It's about being held to ransom by a global company and peonage. It's about global power holding our legislature in contempt. It's also about compassion, a thing missing as we forclose on rural Australia. It's about balance.... Regards from Down Under"

Your comments and posts are always appreciated and interesting as is your way with words. We, too (well, some of us), in the land up over have become quite concerned, as well, by the ever eclipsing subjugation to the globalists and socialists among us and our steady, relentless march to peonage. ....sdb

-- S. David Bays (SDBAYS@prodigy.net), February 13, 2000.

Pieter,

You're beginning to be effected by the downside of globalization. When Ross Perot mentioned that "the great suckiing sound you hear is jobs leaving," we laughed and many of us thought the man an idiot. He is, but that's not the reason -- he was dead right on this issue.

Many on this forum have held out strongly for abiding by and committment to the US Constitution, feeling that it is violated routinely today. You've no doubt read posts expressing dismay at the infiltration of a globalist viewpoint, and you did hear of the Seattle riots (when one branch of the left rioted against another).

These are the same basic issues. If I live in an area and pay for services in that area I should be entitled to be able to hold the service provider to a level of performance. If I cannot, and if I have no choice in the matter, well.......in the history of our nation we had a bunch of "Indians" climb aboard a British ship in Boston harbor and unload the ship -- tea, into the water.

Interesting. The world is getting smaller.

rocky, who remembers flying from Alice Springs into a ranch, back when children reported to school by radio.

-- (rknolls@no.spamrocky), February 13, 2000.

As Garret Hardin said, "You can never do only one thing".

Others have expressed this as the Law Of Unintended Consequences.

Good intentions often do not suffice.

-- Tom Carey (tomcarey@mindspring.com), February 14, 2000.

Thank you everyone for continuing this debate,

I have just talked about it with my independent member of Parliament. He's very interested in this too because it is putting profit before people.

I asked him why the media gag in the Murdoch papers here and overseas. He seems to think that Murdoch's interests are with ending the nation state and its sovereignty to favour the multi-nationals. A degree of subservience is our reality today.

Thanks once again. Let's keep the creative juices flowing, even when the power goes off once again.

Regards from OZ

-- Pieter (zaadz@icisp.net.au), February 14, 2000.

Pieter, When you said..."The only sensible medium-term policy option left to Victoria and SA is to build new transmission lines to NSW as quickly as possible, and rely on NSW generators for growth in demand. Without that connection, the wholesale price of electricity in Victoria will drift up ..." If privatisation shifts risk from government to the private sector, we are in big trouble here in the northern coast of California... the county of Del Norte and several other counties have come together and purchase the lines, equipment and such from Pacific Corp.,(Pacific Power). They actually don't even belong to Pacific Corp., anymore after the regulated Pacific Corp. sold to the unregulated "Scottish Power" ...but we have a county government that can't seem to manage their own affairs let alone try to manage power distribution and maintenance. Before this deal went through, Pacific Corp. closed it large station in Medford Oregon and moved them to Portland...and in this county they reduced the work units to one unit...they can't even keep up with normal operations let alone when a storm or something else happens... for example when a car hit a pole in town...the electricity wasn't restored for 6 hours because the city had to wait for the only work crew to finish a job 2 hours away in Klamath before they could come to Crescent City. We also live in a county with graft and more graft... there are corrupt superintendents from schools on down to the county ... they are fast to do what fills their pockets and quick to find someone else to blame the problem on when they occur from all the mismanagement. You said also..."Final responsibility for security of supply still rests with government rather than the foreign owners of Victoria's generators. All privatisation has achieved is to cut away most of the policy levers that previously allowed government to manage that risk successfully."...well, we are seeing this now...Pacific Corp promised they would not rise the rates, but they don't own the lines and such anymore...anyway they didn't raise the rates they had the Public Utilities Commission do it for them...but wait there is still more... clause in contract is not subject to statement made to public... statements are only intent, not binding... statement to keep rates the same is only a formality...and since government is out of it now... they can do anything from restrictions to rate hikes... I am so glad I don't have to rely on their power and pay their price... the best thing I ever did was take Gary North's advice and go independent and prepare for the worst... y2k is the word... the new world of graft ... we will see soon a shortage of power due to shortage of oil to power the generating dustry...coal is already getting scarce for some electrical generating plants and soon we will see further problems when spare parts are available to keep them (the present power plants)running. I don't know much about the politics like you...but I assume the politics of crooked men in industry doesn't differ much whether it is in Australia or America. I see a whole new era of problems surfacing...the problem of government watching the private sector collapse and then stepping in and taking over for the good of the country... Maybe in Australia, socialism isn't the problem...but in America, socialism and communism is in bed with government. It is going to be an interesting next few months as the world tunes in for a world government for the good of the world. The rich get richer and the poor get more repressed and oppressed. I am afraid that this new power privatization in our section of the country is setting a presidence that will roll over the people like a steam roller! Regards from where the Redwoods meet the Beach, BRyan

-- S BRyan G III (sbrg3@juno.com), February 14, 2000.