The Guardian September 5, 2001

Shock treatment:
The Californisation of South Australia's Electricity

by Bob Briton

South Australians are presently bracing themselves for the full impact of a 
process set in motion in August 1993. In that year the Hawke Federal 
Government was handed the Hilmer Report, which laid down guidelines for the 
much-vaunted National Competition Policy. The consequences of this 
privatising, job-shedding, pro-business agenda are being felt every time a 
light switch or power point is switched on with only the prospect of worse 
to come as "deregulation" reaches its climax in 2003.

The breakup of the publicly owned Electricity Trust of South Australia 
(ETSA), the sale or lease of its component parts and the State's entry into 
the National Electricity Market (NEM) in December 1998 were promoted by 
industry and Government alike as being the dawn of an exciting new age for 

Leverage in the campaign to divest the community of a major asset was 
gained by the fact that the economy was saddled with a debt of $10 billion 
due to the demise of the State Bank. Nevertheless, the talk was upbeat.

The dream versus the reality

Customers were to have freedom of choice with "smart metres" trawling the 
available sources for the cheapest power available. Private corporations 
were to be competing to deliver higher standards of service and "products" 
tailored to the specific needs of the consumer.

Alternative power from renewable sources would be part of the free 
enterprise dream to be administered by the National Electricity Market 
Management Company (NEMMCO).

A series of meetings of the Council of Australian Governments involving the 
Federal and State Governments in the 1990s saw all eastern States and South 
Australia (SA) sign up for a National Electricity Market. Just in case any 
of the States found the plan or the timeline unappealing, the Federal 
Government had and maintains the power to withhold the State's share of 
payments from a $77 million "competition fund".

South Australia dutifully corporatised ETSA before carving up the utility 
for sale. Electricity generation was taken over by transnationals like 
giant TXU (or Texas Utilities), London-based International Power Plc's 
local unit Australian National Power, Origin Energy and its Canadian 
partner ATCO, and NRG Flinders.

Major transmission lines were handed over to ElectraNet SA while local 
distribution networks continued operating under the name "ETSA Utilities" 
while actually being leased to Hong Kong Electric CKI.

"Retailing" of electricity (i.e. buying electricity on the National 
Electricity Market, selling it on to the consumer and delivering the bill) 
was divided into two sections. The gas supplier AGL is a "regulated 
monopoly" in retailing electricity to householders. Though several other 
corporations (like TXU and Origin) are able to sell to bigger "contestable 
customers", AGL is the dominant force in this area also.

A decade after those initial meetings of Ministers, the technocratic dream 
in South Australia has been replaced by a far more dismal reality.

The cold hard facts are that the State Government can no longer guarantee 
an uninterrupted power supply, small consumers are paying significantly 
more for their electricity and are having to look at stopgap measures to 
cope. The knock-on effects throughout the economy and society are extremely 

This winter alone there have been more than 1,000 blackouts in South 
Australia. The average metropolitan blackout lasted 39.5 minutes while in 
rural areas it was 83.3 minutes. In remote areas it averaged 75.8 minutes. 
Spare a thought for the small communities of Kelly, Mt Hope and Uley South 
that have had 46 hours without power in the last two years.

This new era of unreliable power has caused a boom in the sale of portable 
petrol and diesel-fuelled generators. One local doctor has taken this 
extraordinary step to prevent the loss of crucial information from his 

Coopers Brewery is installing a co-generator to safeguard its supply and 
even that zealot for privatisation of the electricity utility, Hugh Morgan 
of Western Mining Corporation is said to be considering building his own 
generating capacity in response to the failure of corporate electricity.

According to the Adelaide "Advertiser", the average householder has had an 
18.4 per cent increase in electricity charges since 1996 and monopoly 
retailer AGL has signalled its wish to raise charges by a further six per 
cent in line with increases in the CPI.

Householders' losses have been relatively light ... so far. The new 
arrangements and their full impact are being introduced in stages or 
"tranches". The first tranche, which included the big consumers like the 
vehicle manufacturers, quietly accepted contracts from retailers that 
lowered their power bills.

On July 1 this year, customers using over 160 megawatt hours or around 
$20,000 worth of electricity were the next to sign contracts or face the 
prospect of buying power on the "spot market" (more on this later).

Caught in this net were Councils, government Departments, schools, 
hospitals, charities, providers of age care and around 2,700 smaller 

The Flinders Medical Centre will have its $1.3 million power bill increased 
by $390,000. A high school that spends $20,000 on electricity will now have 
to pay $26,000. Increases ranged from 30 per cent to 100 per cent.

Councils are considering a significant rise in rates; a schooner of beer 
may go up by as much as 15c as the increased costs are passed on. A 
community owned hotel in Renmark is facing the prospect of laying off some 
of its 80 staff.

Port Adelaide Central Mission wrote to the Premier Mr Olsen about their 
contract, which contains a 45 percent increase for its two larger nursing 
Homes — Wesley House at Semaphore and Westminster Village at Grange. The 
charity is up for an additional $65,000 annually.

Bedford Industries, which employs 450 people with disabilities, may have to 
abandon plans for expansion in light of a $70,000 hike in their electricity 

The next "tranche" to be given the deregulation treatment will be the 
270,000 households. The South Australian Independent Industry Regulator, Mr 
Lew Owens can find nothing illegal about the huge imposts placed on 
consumers in July this year and is reported as saying that he would not be 
surprised at similar increases in January 2003 when households shed their 
"non-contestable", regulated status.

At that stage private consumers will have to sign a contract with a 
retailer, be that AGL or one of its competitors. Not even the most 
incurable pro-boss sources are game enough to predict benefits to South 
Australian households.

The thief loves a noisy market
(Persian saying)

How has this been allowed to happen? What exactly is the cause? Who is 
benefiting from this disaster? How can it be fixed? Where are the 
regulators, the government "watchdogs" when you need them?

These are all valid questions, indeed the burning questions of the hour, 
but the answers are not forthcoming. The operations of the National 
Electricity Market are complex, even arcane.

Some key facts will, however, give some clues as to the identity of the 
major winners in the South Australian case, which the "Advertiser" has 
called "the case of the disappearing profits".

The National Electricity Market has its origins in a process that predates 
deregulation. The idea is to connect "megawatt rich" States like NSW and 
Victoria with South Australia and Queensland, which have very little 
surplus generating capacity.

"Interconnectors" were built to link the grids. The brave new world of 
privatised power converts this situation into a national electricity pool 
in which electricity is, in principle, priced according to laws of supply 
and demand.

This means that on the control panel at a generator like the ones at 
Pelican Point or on Torrens Island a new and very important piece of data 
flashes and fluctuates. It is the current selling price or "spot price" of 

The operator of the generator may decide to supply electricity at that rate 
or withhold power from the network, wait five minutes for the consequent 
downturn in supply and rebid when the price goes up.

The price might be $38 per megawatt hour (MW/h) or $4,000 MW/h! At the 
moment, the maximum price generators like National Power, TXU, Origin 
Energy et al can charge is capped at $5000 MW/h.

This bar is to be raised to $10,000 MW/h in 2002 and, after January 2003, 
there will be no cap at all. Prices have averaged $81.40 MW/h last summer 
and have nudged the maximum $5,000 MW/h on a number of occasions.

(N.B. $38 per MW/h is 3.8 cents per kilowatt hour, $5000 MW/h is $5 per 

On one particular occasion last November whole suburbs, supermarkets and 
shops were plunged into darkness as local generators dumped local consumers 
and directed their capacity to Victorian clients.

A sudden industrial dispute had caused a crisis there and South Australian 
generators strained the distribution network in the rush to cash in on the 
$5,000 MW/h on offer.

South Australians sat around candles while their electricity suppliers went 
sniffing for profits. Their hunt was highly successful — that week 
Northern Power's income went from $278, 564 in the week ending October 26 
to $10,618,619 for the week ending November 2. Other generators made 
similar gains.

Democrats Deputy State Leader Sandra Kanck has revealed that generators 
brought in $84.1 million in a single week in January this year.

Remember, also, that these same monopolies maintain that alternative energy 
sources like solar and wind power are too expensive!

Fascist electricity?

After the Fascists' "March on Rome" in 1922, Mussolini made the 
following announcement: "We must take from the state those functions for 
which it is incompetent and which it performs badly. I believe the state 
should renounce its economic functions, especially those carried out 
through monopolies, because the state is incompetent in such matters..."

He proceeded to take over control of the power generating capabilities of 
the municipalities, forged them into a network and promptly handed it over 
to his powerful corporate backers to further build their fortunes. Sounds 

Opponents of this type of treachery — and there were many —were simply 
jailed, exiled or worse. Organisers of the modern welfare state for the 
wealthy don't have this facility and, in order to get around what limited 
democratic rights do exist, they prefer to confuse the process instead.

The case of South Australia's electricity crisis is a classic. Nobody is to 
blame and nobody fully understands the problem, it would seem.

Typical of the reactions from generators to the growing unease in the 
community is Ed Metcalfe who manages the Pelican Point power station for 
National Power. He was responding to a claim from retailer AGL that 
generators were the cause of high contract prices because of a lack of 
generating capacity in the State: "We are not the bad guys here. We are not 
screwing SA businesses".

He claims that Pelican Point was selling power at 4c a KW/h while 
households were paying about 14c KW/h. "You might care to turn the 
spotlight on to the 10c (difference), as opposed to the 4c", he told the 

Retailer AGL says further that customers are having trouble adjusting to 
paying the full cost of transmission and distribution. In any case, AGL is 
claiming problems of its own. It has had to divert $80 million in emergency 
funding to its NZ subsidiary, Natural Gas Corp.

Clive Armour, formerly a General Manager/Director of the South Australian 
Gas Company, then Managing Director of ETSA Corporation and now Managing 
Director of Canadian-based ATCO Power says that the State government wasted 
its $115 million on consultants for the privatisation process. What is 
really needed is government assistance to establish an alternative gas 
supply. Cheaper, more ample generation would follow like night follows day!

The State Opposition Labor Party maintains that generating capacity in the 
system was deliberately run down and interconnection projects and upgrades 
were delayed in order to ensure a tight supply situation and high prices in 
the short to medium term for private utility operators.

A related argument used by the Government when referring to future 
solutions goes that upgrade work to the Heywood interconnector, the 
completion of the Riverlink interconnector, the increase in capacity of 
Texas Utilities' Torrens Island power station and the inclusion by AGL and 
others of gas turbine "peaking plants" will save the day.

Ignored in these arguments is the fact that "peaking plants" only produce 
very expensive (and dirty) power at times of extreme demand. Also absent is 
any reason why this increased capacity won't continue to be withheld to 
boost prices or go elsewhere when prices so demand.

Others maintain that SA already had sufficient capacity for its own needs 
but not for those of the National Electricity Market casino. They aren't 
convinced that increased use of household airconditioners, for example, is 
to blame for the current crisis.

There is a sad sidelight to this detail of the saga. While Western Mining 
Corporation consumes 10 per cent of the State's entire electricity 
generating capacity to run its uranium mine at Olympic Dam, elderly 
residents were putting their health at risk by sweltering in the extended 
heatwave conditions last summer.

They were too frightened to turn on their airconditioners and thereby bring 
the electricity network crashing!

For all the current problems, figures like State Treasurer Rob Lucas and 
his counterparts in other States like NSW insist that the market is not 
working as it should because of the meddlesome caps on prices and other 
elements of regulation in the system. Still, it must be said that 
relatively few, for whatever reason, are calling publicly for the 
deregulation "Full Monty".

As previously mentioned, the Government "watchdogs" are aware of recent 
developments and have made pronouncements on it. Unfortunately for smaller 
consumers, they seem more like spectators than "watchdogs".

The State Independent Industry Regulator (SAIIR) has the stated functions 
of regulating prices and monitoring compliance and overseeing improvements 
in service and supply.

So far, while noting the pricehikes, the SAIIR has done nothing to 
intervene. He has suggested a change to the bidding system which would 
prevent generators rebidding for the supply of electricity within three 
hours of a previous bid (they currently have to wait five minutes). He is 
worried about the lifting of the price cap of $5,000 MW/h for generating 
companies. But that is all.

The Australian Competition and Consumer Commission (ACCC) is the "watchdog" 
for the entire National Electricity Market. In the June 13,2000, issue of 
"The Bulletin", Deputy Chairman of the ACCC Allan Asher has the following 
to say, "...industry restructuring and competitive electricity markets are 
increasingly a global trend.

The result is an industry where commercial incentives drive management 
decisions and new investment, an industry that contributes more effectively 
to economic growth and improves the well-being of customers". Don't expect 
the ACCC to be batting on the side of workers.

The overseas experience

Mr Asher has made a valuable point, nonetheless. We aren't the only ones 
suffering under these "reforms". From New Zealand, Great Britain, Chile, 
Venezuela, Russia and elsewhere we see reports of energy "crises". The 
problems are due to "shortages", "price controls", "environmental laws", 
the weather or "political instability". Every reason is given except the 
one that can make sense of the phenomenon, the global system of profit.

In a recent issue of the Communist Party of the USA's monthly magazine 
"Political Affairs", a series of articles sums up some of the US's 
experience with a particular focus on events in California. Californians 
are further down the road currently being travelled by South Australians. 
They have already experienced rolling blackouts in spite of the existence 
of adequate generating capacity.

They have had to bail out the first of the companies to go under in the new 
privatised electricity market. The resultant State debt is valued at $300 
per person in California and their electricity charges are to be increased 
into the bargain. Meanwhile Reliant Energy has made a remarkable comeback, 
increasing profits by 600 per cent in recent months.

Commenting on the complexity of the blame game in California, "Political 
Affairs" quotes Mas'ud Zavarzadeh who said the device is "a strategy by the 
ruling class to 'dismantle the theoretical foundation of a coherent 
knowledge of capitalism as a totality'. In other words, to prevent an 
understanding of capitalism as a system where one part affects another.

"By reading the effects of capitalism as isolated and 'unique' instances 
that cannot be reduced to a single cause, this logic teaches that the 
unregulated private consumption of social resources is not connected to the 
objective basis of capitalism in the exploitation of labor, but rather that 
it is the natural condition of human beings. The purpose of such a lesson 
is to erase the possibility of social and economic justice."

Marx is quoted in relation to the current situation "...the epoch which 
produces this standpoint, that of the isolated individual, is precisely 
that of the hitherto most developed social (from this standpoint general) 

It is the private ownership of the means of production — the 
transformation of the public need for electricity into a privately owned 
commodity that is bought and sold on the market — that has caused the 
energy crisis. This goes for California as well as South Australia.

People will struggle

For all the bad news about the worldwide trend towards the monopolisation 
of social resources, the US experience offers some reasons to be hopeful of 
a fightback. Trade union peak council, the AFL-CIO, has led a campaign 
involving "rolling demonstrations" in response to the rolling blackouts 
plaguing the country.

This, and other evidence of nationwide public resentment, has prompted even 
privatisation zealots like Federal Reserve Chairman Alan Greenspan to call 
for price restraint in the private electricity market. He should be 
worried. Seventeen out of 24 States that deregulated their electricity 
market are reconsidering their decision. Nevada has already repealed it.

In California, legislators are being forced to consider a "windfall profits 
tax" and demands that $8.9 billion in overcharges be recovered. A recent 
measure in California gives the State the right to create a power authority 
and run power plants under public ownership and control.

Australian Governments will continue to insist that "you can't get the 
toothpaste back in the tube". Like the GST, once it is unleashed workers 
have no choice but to adapt. The US labour movement is putting lie to 
statements of that sort at this very moment and it can't be very long 
before Australian workers take up this struggle also.

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