Privatisation and deregulation of the electricity industry could be a confidence trick

Dene MacKenzie

Otago Daily Times 24 October 2003

Power Play: The Fight for Control of the World's Electricity, Sharon Beder

Warm and sunny days help consign the 2003 winter electricity crisis to the back of the mind. However, in her new book, New Zealand-born author Sharon Beder argues that electricity privatisation and deregulation is a confidence trick. Business Editor DENE MACKENZIE spoke to Dr Beder.

Public conned out of power ownership, book says Author Sharon Beder had planned to include a chapter on the privatisation of New Zealand's electricity industry in her book Power Play before the collapse of energy giant Enron dominated headlines.

New Zealand-born Dr Beder told the Otago Daily Times in an interview she was well aware of the problems the New Zealand market had encountered since privatisation under a previous National-led administration.

And she had followed the ongoing debate over whether state-owned Meridian Energy should get permission to build its planned $1.2 billion Project Aqua electricity generation system on the braided Waitaki River.

Dr Beder, the professor of the science, technology and society programme at the University of Wollongong, uses her book to argue that the track record of electricity privatisation and deregulation around the world indicates it is a confidence trick, undertaken to swindle the public out of rightful control over an essential public service - a trick conceived and perpetrated by vested interests who seek to gain from private control.

Privatisation and deregulation had become the accepted wisdom and no-one was questioning the neo-liberalism theories, she said.

Developing countries had little choice but to follow the directions of the International Monetary Fund and the World Bank and sell off their electricity generators to foreign investors, many of which had donated large sums of money to governments for the privilege of making large returns from the careful management of the electricity market, not for the benefit of users but for the inflation of profit margins.

The need to make short-term profits had led private companies to delay or abandon expensive but necessary long-term projects like building new generators, Dr Beder said.

That would certainly ring some alarm bells in New Zealand as the Government scrambles to ensure there is enough alternative generation available next year in case hydro-electricity lakes are again drying up before winter.

The book details how a group called the American Taxpayers Alliance, headed by a Republican campaign manager and with secret funding sources, said to be energy interests, spent some $US2 million ($NZ3.4 million) on television commercials blaming former California governor Gray Davis for the state's infamous power crisis of 2001. It adds to the intrigue which saw Mr Davis recently recalled as governor and replaced by Republican actor-turned-politician Arnold Schwarzenegger.

Dr Beder said the huge prices paid by investors for generating, transmission and distribution assets in many countries attested to the fact they expected large profits.

''Where were those profits to come from, if not from price increases or service cuts?''

The claim was that publicly-owned and state-regulated electricity monopolies were so wasteful and inefficient that private companies competing in a free market could save enough money to both cut prices and make a profit.

''Did the private companies that snapped up public electricity assets really think they would be able to cut prices and maintain the same level of service while paying more for their loans than the previous owners; paying huge salaries to executives, paying dividends to shareholders, funding PR advertising and lobbying activities and, at the same time, making big profits as well?

''I don't think so. I think it is much more likely they thought that, once they owned an essential public service and prices were deregulated, they could charge what they wanted for electricity. They were willing to pay a premium for the ability to exploit this opportunity.''

Deregulation did not end subsidies, it merely shifted them to favoured customers, she said.

According to Dr Beder, electricity privatisation and deregulation have all the elements of a successful confidence trick.

The deception, or trick, involved persuading the public, and the politicians who represented them, that a dramatic alteration in the governance of their electricity systems would be in the public interest.

Electricity consumers were promised electricity rate cuts, better service and ''consumer choice'' as a result of the competition that deregulation would foster.

Governments were promised reduced budget deficits and less responsibility for an increasingly complex and capital-intensive service sector. In developed countries, such as the United Kingdom and Australia, privatisation promised reduced union power as well.

Since early last century, the private power companies in the US had learned to utilise some of the most sophisticated and deceitful public relations techniques ever devised, Dr Beder said.

They had enormous financial resources at their disposal to supplement those techniques with every conceivable inducement to buy allies, politicians and credible spokesmen.

''They have been able to enrol community leaders, educational institutions, the media, the churches, clubs, women's groups, environmental groups, charities, and experts and professionals to help make the case for the private control of electricity.''

Since then, there had been a massive transfer of ownership and control of electricity assets worldwide from the public to private companies. The companies that had taken over electricity provision in most countries were multinationals with little interest in the welfare of local citizens, she said.

As a result, retail electricity prices increased, often dramatically, for households and small businesses in most places where electricity was privatised or deregulated. Where wholesale prices declined, it was usually as a result of external cost reductions, particularly in the cost of fuel.

''Had the government-owned systems remained in place, consumers and/or taxpayers would have reaped the benefits. But in an unregulated private system, private electricity companies along the electricity supply chain have largely retained the savings from lower fuel costs.''

Large industrial consumers might have reaped benefits from lower wholesale prices but rarely had residential consumers gained more than a tiny trickle of cost savings, Dr Beder said.

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