Has the cost of gas and electricity reached the point where it is unaffordable for the poor in our state?
Electricity and gas prices are again in the headlines after The Age [1] reported that the number of Victorian homes that had their gas or electricity disconnected last year hit over 58,000. An increase of 42% over the previous year. A shocking statistic.
The Age reports that there have been cases of people going to the local public pool to save on hot water and people lying in darkness because they didn't want to turn their lights on. You hear all the time of the poor and pensioners putting layers and layers of clothing on because they can't afford to heat their homes. Who would have thought that in 2015 people would freeze or live in darkness because gas and electric cost too much?
But why has the the cost of gas and electricity increased so much? It's pretty simple, privatisation. Remember, about 20 years ago, Jeff Kennett sold off the utilities promising it would increase efficiency and lower prices? Well the opposite happened. For the sake of the exercise I will concentrate on electricity because I was able to find more information about it.
[2] Since privatisation, prices have soared, why? Well there are many reasons, but the main reasons are, firstly, productivity per worker has plummeted in the electrical industry, while in just about every other industry it increased. From June 1995 - 2012 productivity in all sectors increased by 33.2% while in the electricity sector it decreased by 24.9%.
The reason for the fall in output per worker is the increase in staff that don't generate electricity. For example managers grew from 6,000 to 19000 from 1994-2012 (217%). The ratio of managers to workers has changed from 1:13 in 1994 to 1:9 in 2012. This has been caused by the privatisation and splitting it into smaller entities each requiring its own management and admin teams. The cost of this has been passed onto consumers.
Another factor that may explain the increase in electricity costs is the ‘asset price inflation’ involved in the privatisation process. Private buyers are willing to pay a good deal more than the value of the plant and equipment because of the potential profitability involved in buying a business with monopoly pricing power. However, for the new owner there is now an objective need to increase prices to earn a competitive return on the inflated asset price as well as to cover depreciation and amortisation expenses. In this way privatisation directly increases the capital servicing costs associated with electricity supply.
The only way to curb the outrageous prices we are paying for essential services is for the government to take back control, eliminate the need to make a profit and increase efficiency by cutting admin staff and management. Maybe then the poor in our community will be able to afford what most would think to be basic needs.
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