Fact checking the ETU on electricity prices

The ETU has put out a media release on privatisation of electricity assets, almost all of which can be demonstrated to be untrue or inaccurate, or only accurate up to a point.

You can read the release by clicking here, but I have summarised and analysed the substantive points below.

The ETU release refers to a study by Ernst and Young for Commerce Queensland, the Property Council, Infrastructure Partnerships, and Australian Industry Group.

1. ETU discounts the report because they say EY has a conflict of interest because they are advising the government on the sale of assets.

This is an argument you run when you don’t have an argument. If they are wrong, then the facts will show this irrespective of any conflict they might have. In any event, if EY are conflicted because they advise the state government on power generation issues so too are the ETU. Most companies capable of doing this sort of work will have these sorts of conflicts, otherwise they wouldn’t be expert enough to do the work.

2. ETU says the Treasurer doesn’t compare apples with apples and relies only on an analysis of network costs rather than retail costs

It is not the treasure’s report, but the report does compare apples with apples, as in retail prices with retail prices and does look at retail pricing as well as network pricing as this table taken from the report illustrates. As can be seen from the graph the ETU is also wrong to suggest that retail pricing is a better indication of efficiency as network charges represent the greater part of the cost to consumers.

EY_Table_2

3. St Vincent de Paul report shows privatisation is more expensive

This claim is based on an ABC report of a St Vinnie’s report. However the ABC report doesn’t prove anything, and as the graph below, taken from that report shows, it doesn’t appear to cover a long enough period to say anything about privatisation, which in the case of South Australia occurred in 2000, and in Victoria occurred in 1996. Gains from these sorts of exercises generally are largest earlier on, so choosing a later period mutes the benefits. This graph also contradicts the claim that electricity prices in Queensland are lower than in Victoria. 

Vinnies

4. SA power bill $400 higher than east coast

This is supported by this link http://www.adelaidenow.com.au/news/south-australia/sa-power-bills-almost-400-higher-than-eastern-states/story-fni6uo1m 1227134149266?nk=ea1903b34f3e6ccbf7af2aceeaa01421, but it gives a 404 error. I cannot make any comments on it. It does not appear to be borne out by the EY research, which quotes average electricity prices, nor the St Vincent de Paul research which the ETU is keen to selectively quote.

5. “Mr Nicholls knows full well that the physical span of different networks is the single largest factor behind variations in both operational and capital expenditure and he would, or should, be aware that numerous analyses have shown that public networks are on a par or outperform private networks on operational costs”

The Ernst Young report actually touches on these issues, so implying the report neglects this is wrong. The quote below is from page 7 of the report. There is more. So this claim is incorrect.

EY_p7

The only study quoted by the ETU is the St Vincent de Paul Study. Against that has to be weighed studies by:

  1. The Productivity Commission – Electricity Network Regulation

An EY report done for the NSW government last year – Electricity Network Services – Long-term trends and in prices and costs

The Grattan Institute (this institute is funded by Melbourne University, and the Victorian and Commonwealth governments and numerous corporates and is probably Australia’s biggest and most authoritative think tank.)

Grattan institute is quoted in the EY document (p9) as saying:

Grattan_p9

6. Apart from delivering higher prices, privatisation also lowers service

Again the EY report deals with this contra the claim. At page 10 EY says

EY_P10

There’s a lot more, but it is not in the ETU’s favour.

7. Lack of maintenance on the private Victorian grid contributed to 5 of the 11 bushfires that killed more than 100 people back in 2009, resulting in a class action by victims and communities, which settled last year for $500,000,000, so much for private sector efficiencies

In fact the Queensland government took the results of the Victorian Bushfires Royal Commission and considered them in the Queensland context. You can find the Royal Commission Recommendations on modifications to electricity distribution assets here: http://www.energyandresources.vic.gov.au/energy/safety-and-emergencies/powerline-bushfire-safety-program/victorian-bushfires-royal-commission

The relevant recommendations are 27 to 34.

The Queensland government report on how these recommendations might apply in Queensland is here: http://www.cabinet.qld.gov.au/documents/2010/nov/2009%20victorian%20bushfires/Attachments/Qld-Gov-response-23-12-102%5B1%5D.pdf

It’s response to recommendations 27 to 34 is:

There are significant differences between Queensland’s and Victoria’s fire risk environments and electricity infrastructure. There is a lower likelihood of electricity assets in Queensland starting fires, because Queensland does not experience the catastrophic weather conditions that prevail during the Victorian fire season. However, the recommendations relating to electricity-caused fire will be examined in the Queensland context by the Queensland Government which will receive advice from key stakeholders in the electricity sector. Queensland’s position will be determined by mid-2011.

From this it appears that Victoria faces costs that Queensland doesn’t, making this claim particularly invidious as it appears to trade off the misery of people who lost property, friends and family in Victoria to make a spurious claim. Our inquiries into the follow-up in Queensland suggest that it didn’t happen. So it may be that Queensland’s power network is currently not being maintained to best practice as determined by the Victorian Royal Commission.

The only thing that appears to be correct about the ETU release are the contact details in case of further questions.

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