David Bidstrup: Is public ownership of electricity assets “socialism” or just common sense?

This article looks at the history of electricity generation, the reasons why governments’ were intimately involved in it and the reasons why they chose to exit the industry and create the godawful mess we have today.

I fully expect to be vilified by the free market aficionados but I am old enough not to bother about name calling and think that the facts always point to the truth even though they are often difficult to find. My example is the state of SA although there are parallels with Victoria and probably other states.

Reliable cheap energy has always been a major driver of industrialisation and it still is today. This point seems to be lost on those who implement policies that raise prices, reduce reliability and cause industries to close their doors and lay off employees.

South Australia started off with a private supplier of electricity, The Adelaide Electric Supply Company, (AESCo), who provided electricity in the metropolitan area of Adelaide. They saw no reason to make large investments which might have long delays before getting a return so the chances of luring industry to SA with cheap and abundant energy were slim.

Premier Tom Playford had an agenda to industrialise SA and looking back he was very successful in doing this. It is hard to imagine that the busted arse place we have become was once a fairly vibrant economy producing cars, cotton fabrics, television sets and whitegoods as well as steel making, ship building and oil refining. The demise of many of these things was the advance of “developing” countries where cheap labour priced the domestic products out of the market, (Japanese TV sets for example), and what was not killed off by that was squandered by the idiots that followed after Playford ended his career after 36 years as Premier.

Playford “nationalised” the electricity industry, (with the enthusiastic support of the then Labor opposition), and formed ETSA which had the charter to expand the capacity and coverage of the electricity grid, ensure reliable power and keep prices as low as possible. In association with the Housing Trust which provided cheap land, factories and housing for workers and the Engineering and Water Supply Department that ensured water supply and sewerage facilities and with a pragmatic approach that reduced bureaucracy the results were impressive.

Capital works were funded with public debt. ETSA consistently covered debt repayments and provided an annual dividend to government coffers. The organisation was driven by engineering with forward plans to build power plants that would cater for future growth in a manner where there were no power shortfalls. Incidentally, people I know from that era tell me the SA/VIC interconnector was built to take excess power from Loy Yang when power growth in Victoria stalled. This saw the cancellation of the next power station on the books. Those who knew the traps occasionally took time out from their lawn mowing rounds to try and raise the alarm but were ignored. The same happened when reservations about “renewable energy” were raised. Silence.

It seems fashionable to believe that ETSA was “sold” for reasons of inefficiency but that is not so. The Bannon Labor government’s insane “State Bank” fiasco, where 2 small banks were merged,(but someone forgot to remove the government guarantee), put under the control of a department store manager and eventually crashed and burnt as the experiment in “Merchant banking” failed miserably. It left a large debt, “guaranteed by the government”, which needed to be repaid and there was no money in the till. It was the time of the “economic rationalists” and the “user pays” principle so the obvious source of the cash was to sell some family silver. ETSA was first to go. There are parallels with the fate of the SECV in Victoria in the aftermath of their state bank’s Tricontinental disaster and the collapse of the Pyramid Building Society.

18 years have passed and we are still in the grip of idiots. No one “in power” seems to have the slightest idea of the damage that has been caused by chucking taxpayers money at the “renewables” carpetbaggers so they can build useless wind farms, large scale solar farms, batteries and the fantastic Snowy 2.0 and then having us pay them for the privilege of ruining the economy. People clap when good power stations are destroyed and we are plunged into chaos. The stupid focus on “climate change”, “emissions reductions” and the vilifying of coal is insane and needs to be fought with all our might.

Many years ago I learnt the difference between efficiency and effectiveness. Effectiveness is “doing the right thing”; efficiency is “doing the right thing as well as possible given the situation that applies”. Someone could be the most efficient producer of button up boots but it would not be effective. No one wants them.

People seem to be afraid to voice an opinion lest they be branded a socialist or a communist or some other epithet but I could not care less. If I am any “ist” it would be a realist.

In a previous post on Catallaxy I saw the following:

 It’s not that those who forget history get to repeat it, but those who do not learn from history end up being led around in chains.

That is where we are today and where I fear we will stay unless there is a rush of “common sense” to the head. The “leaders” of both sides of politics need to recognise the error of their ways and understand that what they fervently wish for is not achievable. What are the chances?

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77 Responses to David Bidstrup: Is public ownership of electricity assets “socialism” or just common sense?

  1. Entropy

    It is hard to imagine that the busted arse place we have become was once a fairly vibrant economy producing cars, cotton fabrics, television sets and whitegoods as well as steel making, ship building and oil refining

    Using the coercive power Of Government to feed off the backs of the rest of the country you fucking parasites.

    But I digress. Carry on.

  2. Paul

    It’s plain and simple socialism.
    Just another market intervention by big govt.
    The free markets will always determine the cheapest prices, unlike govt intervention which always guarantees the highest prices.

  3. Entropy

    Anyway, while I agree that the government needs to take over energy production, your reasons are wrong. The time when electricity prices were lowest was after suppliers in Victoria werebprivatised. This happy circumstance could have continued except that government decided it needed to corrupt the market in favour of renewables. From that pint on the market has been destroyed. While the regulators pretend there is a market. There is not. It is a complex web of government favour, where the profit is made from government subsidy.

    Might as well be obvious and make the relationship honest. Th market has been destroyed. Might as well have Government honestly run things, at least for a while, until the market can breath again.

  4. Hydra

    Bit of a click bait headline. The author doesn’t once address the difference in efficiency or effectiveness of public vs private ownership despite the rambling of the importance of both. Can you please actually put a paragraph with your contention clearly outlined?

    Regardless, the author clearly does show that renewable subsidies have failed; ergo; the problem is governmental allocation of funds ineffectively and inefficiently, not the private sector who allocates funds in the direction that benefits shareholders which means taking public subsidies.

  5. Tel

    Tom Playford really should have started by reading about Austrian economics, and come to understand that all the industries he was building by government decree simply displaced the real potential for South Australians to come up with ideas that could turn a genuine profit. They were better off with AESCo.

    They saw no reason to make large investments which might have long delays before getting a return so the chances of luring industry to SA with cheap and abundant energy were slim.

    You asked them? Why should industry be “lured” by an artificial setup? If the energy is government subsidized by investment that does not make a profit, and the land, water, housing, etc are all government subsidized then what you have is the garden of Marie Antoinette, where everything looks nice, and the people keep themselves busy but somewhere elsewhere people must pay tax to prop that up.

    https://en.wikipedia.org/wiki/Hameau_de_la_Reine

    Many years ago I learnt the difference between efficiency and effectiveness. Effectiveness is “doing the right thing”; efficiency is “doing the right thing as well as possible given the situation that applies”. Someone could be the most efficient producer of button up boots but it would not be effective. No one wants them.

    The only way to get this “effective” result to run genuine business that makes a profit… all the way up from the bottom. None of this “Housing Trust which provided cheap land, factories and housing for workers” the resource must be delivered at market price because it is the market price deciding whether this is good use of said resource. No artificially low interest rates, no artificially cheap power, minimal interference.

    Governments should be building up the trust and consistent rule of law that allows private business to have confidence to invest without worrying that the rules will change next week, or their property will be appropriated. I can understand some protectionism to the extent that it acts as a transition to smooth the shock when there’s an unavoidable change (like China going from rural backwater to massive industrial producer) but Playford’s design was central planning right from the get go. I regard tariffs as better than income tax (they are both bad, the tariffs are less bad), but if government spending is reduced to just the absolute essentials (e.g. national defense) then tax of all kinds will be minimized and tariffs of 10% should be sufficient, without blocking trade.

    The reason no private company wants to invest in coal is they know sooner or later the Greens will come along and shut it down. There’s plenty of private companies willing to make investments with long delays, Amazon has been going for more than 20 years and it still doesn’t make a profit (OK that’s an extreme example perhaps). The average tech startup goes five years running at a loss and no one in the private sector blinks.

  6. Barry Bones

    I think you make some good points. Post WW1, state governments said that we need to develop /?industralise and they went and did it much faster than the private sector could. But that was in the days when the Labour Party, even if you didn’t like all their policies, were at least concerned with the working man and saw electricity as a means to boost living standards.

    But you forget to mention the downside of state intervention. The big rise in power prices over the past ten years has not been because of wholesale energy costs (that has been a more recent phenomenon), but because of “gold plating” in the state-owned networks – who treated the networks as a pseudo tax raising device. The privatised networks (like ETSA) are wAy more efficient than the state-owned or recently privatised networks (see AER benchmarking report).

    As for generation, no way. Big block power stations are now less efficient and less effective. Renewables with firming up capacity that can be added in measured dosages to better match supply and demand is the future. It’s cheaper and better for the environment. And the private sector is getting the job done.

    If you want government to industrialise something, better to stick with the NBN.

  7. Entropy

    They saw no reason to make large investments which might have long delays before getting a return so the chances of luring industry to SA with cheap and abundant energy were slim.

    It wasnt government supplied energy that “lured” them to the mendicant state, it was grants, subsidies and tariff walls paid for by everyone else. Just like the renewable industry.

  8. Augustus Carp

    The issue in Victoria was that the SECV was union-captured, grossly overmanned, strike prone and inefficient.

    “In 1990, there were 21,500 employees of the Victorian state owned electricity company, the SECV. By 2005, following corporatisation and privatisation, there were 8000 jobs left. In the La Trobe Valley, there were 9000 electricity jobs before privatisation, 3000 afterwards.”

    Gross overmanning is a understatement. But ’twas ever thus with staff-captured bureaucracies. The ABC is a fine example.

  9. Singleton Engineer

    The rise of state-owned power stations and high voltage transmission systems in NSW was similar, resulting in ECNSW, the Electricity Commission, now sold off and unrecognisable and the associated technical and commercial skills gone for ever.

    My gut feeling is that the next major development will not depend one way or the other on climate change policies, but on economic reality, which is that there are much better ways to provide electrical power in whatever quantity is necessary for our national future than ever-increasing numbers of subsidised wind and solar systems. The message is starting to sink in, that on cost, environmental, health and reliability grounds, weather-dependent Unreliables are no match for nuclear power. Ultimately, even the greens are divided against themselves, as is the emerging situation in Germany.

    The Unreliables rely on two principles, the first of which is to grab the tax dollar and never account for its expenditure.

    The second is to levy, via energy tariffs, those who do not have solar panels on their roof, to add to the afore-mentioned tax dollars.

    The net result, in both cases, is for the less well off to pay disproportionately more than those better situated – the young, old, poor, sick or transient.

  10. Tel

    If you want government to industrialise something, better to stick with the NBN.

    So you are happy to see government take a dump on someone else’s industry that you don’t care about… laugh it up buddy, your children’s tax will be paying for it when the “off balance sheet” debt suddenly ends up on the balance sheet again (with interest).

  11. herodotus

    Socialists usually love to have government ownership of things like power supplies. That they have changed their tune on this indicates (as I think we all know) that they see opportunities for advancement of their cause in running the country down. This is being achieved quickly via the climate/renewables route.
    The tactic is bolstered by the complicit media/union/green complex all being bent on the same goal.

  12. Entropy

    Herodotus, he left warriors like Hewson for example, are making a killing on renewables. If the energy supply as nationalised, they would have to settle for public service wages.

  13. Nerblnob

    Augustus Carp
    #2695427, posted on April 25, 2018 at 7:41 pm
    The issue in Victoria was that the SECV was union-captured, grossly overmanned, strike prone and inefficient.

    Absolutely. I was part of the problem in 1980-81. We went on strike once because it was a nice day.

    The “Magnificent Seven” controllers at Hazelwood could shut down the state.

    LV was booming during Loy Yang construction period though. “Vibrant”, you might say.

    I was visiting old haunts there last year. Now muchly populated by welfare tourists on mobility scooters attracted by cheap housing. And the social work industry.

    Busy at Hazelwood on decommissioning.

  14. Dan Dare

    SEC – Slow Easy and Comfortable.
    As referred to by many of their “workers”

  15. Nerblnob

    Dan Dare
    #2695471, posted on April 25, 2018 at 8:19 pm
    SEC – Slow Easy and Comfortable.
    As referred to by many of their “workers”

    The real work was done on “foreigners”.
    That was when you brought a home project in to do on SEC time with SEC workshop equipment and labour.
    And we did actually work on weekends, (although not very hard) because of Saturday and Sunday overtime rates. This was ensured by not doing the work during the week.

  16. candy

    I reckon if you could go back in time and someone asked people if they would actually like electricity supply to become privatised around 90% would say no.

    Also if you asked people how much immigration they wanted, it would be a vastly reduced number to now.

    If people were asked if they wanted skilled immigrants brought here for jobs, and not Australians being trained up, they would say no.

    I don’t think any government asked.

  17. Nerblnob

    candy:
    The point of our SEC anecdotes is that nationalised industries are willing victims to union capture.
    OK, so are many private industries , but that’s Australia for you.

    “training up” instead of immigration is a bit of a fantasy.
    Sure you need training, but … you need to mix in energetic experienced people from more advanced countries to kick things along or you end up with a bunch of highly-trained wankers.

    “if you want to transfer technology, transfer a person”

  18. Iampeter

    This is the Cat and contrary to popular belief there are almost no “free market aficionados” posting here, just the usual confused statists and leftists typical of the abysmal conservative movement. Most posters here agree with you on more than they disagree, even if they don’t realize it.
    Basically if you replace the words “electricity assets” with “Chinese made goods” and “public ownership” with “tariffs” most of the idiots that might call you a “grrr socialist” will be in furious agreement with you without realizing that its essentially the same issue.

    As to your post, you’re just making the usual mistake all socialists make in that you don’t want to accept that you have to produce before you can consume and so you think that government involvement with private enterprise helped industrialize Australia but in reality all it did was make it impossible to do so.

    And so today Australia remains a continent the size of the USA with almost no one living here, almost no business here and zero prospects of this changing. Australia is just a sleepy retirement village with favourable diplomatic arrangements thanks to the random fact that we were a British colony. Australia never had a period of economic freedom like America and Britain did in the 19th century which allowed them to build so much momentum and its never even had a few decades in the 20th century that turned the tiny fishing village of Hong Kong into an economic powerhouse or even the “free trade zones” of China that has helped millions claw their way out of poverty in relatively short time.

    So you’re looking at a history of completely squandered opportunity and instead of drawing the correct conclusions re the disastrous consequences of having government involved in everything outside of its legitimate function, you’re concluding the exact opposite in that this has somehow been a success.

    Basically the way you view things is private enterprise, the source of all production and wealth, produces nothing and has no wealth if not for the government which actually produces nothing and has no wealth and you simply refuse to see how completely backwards you have everything.

    That is where we are today and where I fear we will stay unless there is a rush of “common sense” to the head.

    Yes indeed, but these words need to be directed at you and the position you’re espousing. You have everything totally backwards.

  19. Siltstone

    SEC – Slow Easy and Comfortable.
    As referred to by many of their “workers

    And Slow Easy and Comfortable to their customers… I once lived on a dead-end road where SEC(V) trucks would park up all day doing sweet fanny adams. But you know what, it was less costly to the customer than todays boondoggles for wind and solar spivs – and the power never went off.

  20. C.L.

    We live in strange and interesting times.
    In principle, yes, it is socialist for the state to have monopolistic control of electricity assets.
    But we now live in the corporate Age of Joyce – where private companies are even more prone to leftist obscurantism than governments. The best case scenario is for conservative-run states to ratchet brand new coal-fired electricity assets into budgets and wedge the left on price and supply. At some future time – when “renewables” go the way of the hool-a-hoop – they can be privatised. Of course, this assumes the existence of a conservative party.

  21. EvilElvis

    It is certainly socialism in our current time. The market would certainly provide efficient, reasonably priced energy if government burnt god knows how many years of legislative frogshit.

    The South Australian example given is kind of what government should be doing, provide a service when the market can not provide. Privatising later when demand catches or surpasses supply to allow competition is prudent.

  22. Vagabond

    In my part of Melbourne the power supply was quite unreliable and prone to both brown and blackouts until the SEC was abolished and distribution was privatised. There’s nothing wrong with privatised generation and distribution if it can operate in a free market. That happened for a few years after privatization before the green vermin got stuck into the industry. The reason we’re in such a mess is because of government meddling and distortion of the economics of the industry by subsidizing ‘renewables’ and the consequent destruction of base load capacity. The best way to destroy an industry is to nationalise it, which has been demonstrated time and time again all over the world. We’re seeing the destruction of industrialization here by an allied mechanism.

  23. Jeremiah

    I think the government should own and run the electricity. So much cheaper and jobs for all.

    They could also build lots of renewables and be good for climate change.

    So I agree with the comments

  24. Leo G

    Is public ownership of electricity assets “socialism” or just common sense?

    I suggest it is neither.
    Socialism is a doctrine and practise which leads to public ownership of entities such as electricity assets used to provide services, but such public ownership is not itself socialism and does not necessarily imply socialism.
    Common sense by definition relates to judgment of matters which do not require specialised knowledge. Public ownership of the means of providing electicity services requires highly specialised knowledge.

  25. Art Vandelay

    This post can be summed up thusly:

    1) The government has completely destroyed the electricity sector through poor energy policy which has led to rapidly rising prices, inefficiency and unreliable supply.

    2) Therefore the same incompetent and ham-fisted government must nationalise and run the entire electricity sector.

    It takes a special kind of naivety, dare I say idiocy, to think that 2) follows naturally from 1).

  26. Billie

    I don’t have a solution, but I clearly see there is a problem.

    The next generation of Australians will go further done the socialist path, it’s what they get taught at school.

    Equality and fairness is more important than profits, winners are out of favour and competition is “primitive”

    The will of the people is gauged by social media noise level regardless of who is in power

    Never thought I would see the actual need for war, or a “B” ark, to thin the herd

  27. Entropy

    It takes a special kind of naivety, dare I say idiocy, to think that 2) follows naturally from 1).

    Well it doesn’t “naturally”, Art.

    Thing is, the market has been destroyed. There is no market. What you say is generically true. Yet it does not matter. For the private sector entrepreneur considering if they will build a new power station, even if all the government boondoggles and interference were removed, there is still the risk it would be reimposed. And that is even before you had to deal with all the lawfare the activists could dream up. These risks for private investment are too high.

    A sensible entrepreneur would run a mile, and then a second mile before throwing away their resources on such an endeavour.

    No. The market has become so stuffed, if you want new power, the government will have to do it. Even with all that implies for inefficiency and union corruption. At least for a while.

  28. NormaP

    I like your letter in today”s Oz David. For those without a sub, here it is:
    Anyone who wants to see how an economy is destroyed should look at the photograph in your paper today, (“Coal comfort as Northern goes south”, 25/4).

    A perfectly good power station has been slaughtered on the altar of climate change, 500 people have lost their jobs, power prices have risen and energy security has plummeted while idiots clap and cheer.

    The Mayor of Port Augusta says he feels “angry, gutted, frustrated, pissed off, annoyed and let down” but his town never raised a murmur of dissent and did not fight for the station to remain in operation. His crocodile tears are too little too late.

    The zinger in the tail is that nothing worthwhile has been achieved by this madness. “Emissions” have not been reduced (if they ever needed to be), the citizens of Port Augusta endure dust storms while looking for work and politicians duck and weave and talk total BS about “solutions” while the band plays on. What a joke.

    David Bidstrup, Plympton Park, SA

  29. Deplorable

    I reckon if you could go back in time and someone asked people if they would actually like electricity supply to become privatised around 90% would say no.

    Plus if those people were asked today if union leaders and members that involve themselves in shady deals, stealing funds, stand over tactics by use of thugs, and a whole lot of militant industrial actions should be jailed for long terms I reckon the answer would be YES.

  30. will

    The government does not need to build power stations. The government does not need to own power stations. It just needs to provide the incentives for others to do this. Just like it is doing with solar and wind turbines.

    The poles and wires, in contrast, are a natural monopoly, and should either be owned by government or under government franchise or price control.

  31. manalive

    Political homeopathy — like cures like viz. the ‘cure’ for government interference in a market causing skyrocketing prices is more government interference — as with the medical equivalent it’s pseudoscience.
    Sadly in the case of the present electricity market it looks like the only desperate temporary solution.

  32. miltonf

    Goo0d post and letter David. We were much better off with the old state generators with engineers bringing down costs. The actions of the unions were totally disgraceful- no doubt at all. But it has not been as destructive of the real Australian economy (manufacturing-mining-agriculture) as the Canberra induced abomination of an electricity supply we now.

  33. Davo

    Nothing illustrates the self-centred stupidity of appearing to do ‘good’ things than Australia’s approach to global warming and power…and all most likely for no real gain.

    It takes a special kind of talent and disregard for the nation to stuff-up completely our cheap and reliable power, and rule out the one source of energy that achieves what the global warmest say they want (ie nuclear)….all to look informed and caring.

    It is now such a mess that it will be hard, if not impossible, to fix with private investment; and yet the government says it doesn’t want to ‘interfere with the market’ which they have already destroyed with their interference. The only thing that comes close to matching this stupidity, is the nation that swallows this rubbish because they can’t be bothered reading and thinking…and just gulp down what evangelistic media morons sprout.

    Having worked on climate change programs in my day job for several years, i can assure you that the government kept changing the goal posts whenever it didn’t t get the answers it wanted…its a sham for politicians and scientists (esp CSIRO) who stupidly/greedily put their reputations into it and now can’t back down. Many scientists now avoid this stiff as they know its a rort but will be attacked for saying so, against all philosophy of good science.

    One thing that science shows, is the models that all this stuff is based on are wrong and not matching the actual measurements.

    Meanwhile, energy companies do everything they can to harvest the fruits of their ‘useful idiots’ like malcolm and his mates

  34. Deplorable

    Can someone point me towards any major organisation ,government , major companies, unions, or public service bodies that are not some of the following.
    Inept,lazy ,overstaffed, corrupt, badly run, self interested, self serving.
    There is no magic bullet to stamp out any of the above as the biggest con of all the lawyers prefer it that way.

  35. duncanm

    Barry Bones
    #2695423, posted on April 25, 2018 at 7:38 pm

    As for generation, no way. Big block power stations are now less efficient and less effective. Renewables with firming up capacity that can be added in measured dosages to better match supply and demand is the future

    a) bullshit
    b) what the fuck does ‘firming up capacity mean’? Sounds like code for quick-start diesel or gas.

  36. closeapproximation

    Despite the energy system being in a pretty messed-up place, the best option would still be to end all subsidies immediately.

  37. Might as well have Government honestly run things …

    Giggle.

    Which honest minister of which honest department would you foresee running things?

    Abolish all energy taxes and subsidies.

    The subsidies are currently worth way more than the product. How do you expect this to work out?

  38. max

    “The very term “public utility” … is an absurd one. Every good is useful “to the public,” and almost every good … may be considered “necessary.” Any designation of a few industries as “public utilities” is completely arbitrary and unjustified.”

    Murray Rothbard

    The presumption, of course, is that the government could do a more efficient job of providing power than the private companies.

    Nationalize the power companies? Well, let’s put it this way: Would you want your electricity to be deliv­ered by the U.S. Postal Service?

    Government regulates utilities by granting them monopoly privileges, and then controlling their prices.

  39. H B Bear

    Anyone longing for a return to the good old days of government owned generators might want to have a look at the Pony Club where the head of the ETU sent his list of demands to the private email of the relevant Minister before they had even been sworn in by the Governor.

    That is how government owned utilities get run in Australia. And still cheaper than the renewables madness of the UniParty.

  40. Leo G

    Renewables with firming up capacity that can be added in measured dosages to better match supply and demand is the future

    I expect the ” firming up capacity” is a vague reference to energy storage systems, like pumped hydro and electrochemical cells, supplementing spinning/non-spinning reserve. In which case, it is not the renewables that are matching supply and demand, but the storage systems.
    How can storage account for the synoptic scale weather events which regularly cause cloud cover across Eastern Australia and which are associated with low wind speeds for days at a time?

  41. max

    Six electric light companies were organized in the one year of 1887 in New York City. Forty-five electric light enterprises had the legal right to operate in Chicago in 1907. Prior to 1895, Duluth, Minnesota, was served by five electric lighting companies, and Scranton, Pennsylvania, had four in 1906. … During the latter part of the 19th century, competition was the usual situation in the gas industry in this country. Before 1884, six competing companies were operating in New York City … competition was common and especially persistent in the telephone industry … Baltimore, Chicago, Cleveland, Columbus, Detroit, Kansas City, Minneapolis, Philadelphia, Pittsburgh, and St. Louis, among the larger cities, had at least two telephone services in 1906.

    https://mises.org/library/myth-natural-monopoly

  42. max

    In free market, the only barriers to entering an industry are the skill, knowledge, and capital required to provide the product or services.

    When such freedom of entry existed, competition abounded in utilities, despite the high capital cost required.

    For most of the 20th century, competition in the electric industry was prohibited, and it still is in the most of the country today.

    
In the place of competition, state agencies attempt to mimic a competitive marketplace trough regulation.

    book “The Innovator Versus the Collective By Brian Phillips”

  43. max

    The biggest myth of all in this regard is the notion that telephone service is a natural monopoly. Economists have taught generations of students that telephone service is a “classic” example of market failure and that government regulation in the “public interest” was necessary. But as Adam D. Thierer recently proved, there is nothing at all “natural” about the telephone monopoly enjoyed by AT&T for so many decades; it was purely a creation of government intervention.”54

    Once AT&T’s initial patents expired in 1893, dozens of competitors sprung up. “By the end of 1894 over 80 new independent competitors had already grabbed 5 percent of total market share … after the turn of the century, over 3,000 competitors existed.55 In some states there were over 200 telephone companies operating simultaneously. By 1907, AT&T’s competitors had captured 51 percent of the telephone market and prices were being driven sharply down by the competition. Moreover, there was no evidence of economies of scale, and entry barriers were obviously almost nonexistent, contrary to the standard account of the theory of natural monopoly as applied to the telephone industry.56

    The eventual creation of the telephone monopoly was the result of a conspiracy between AT&T and politicians who wanted to offer “universal telephone service” as a pork-barrel entitlement to their constituents. Politicians began denouncing competition as “duplicative,” “destructive,” and “wasteful,” and various economists were paid to attend congressional hearings in which they somberly declared telephony a natural monopoly. “There is nothing to be gained by competition in the local telephone business,” one congressional hearing concluded.57

    https://mises.org/library/myth-natural-monopoly-0

  44. Justin

    A common theme seems to be that the private sector should run the energy market and government should get out of the way in contrast to the article premise. Actually, I think there is heated agreement. A genuine market cannot operate while the market is handicapped by government regulation mostly wedded to the insanity of reducing emissions regardless of cost. Even if the Coalition mooted (which they won’t) deregulation and abandonment of emission reduction targets the market is now so riddled with sovereign / political risk the private sector will not invest. This is why nationalisation of some varitey will be necessary to bring about change in the short to medium term and restore power prices to acceptable levels. It sounds counterintuitive (government intervention made the mess but more government intervention will solve the mess) but I cannot see any other way. The NEG / REG is a total dud and a non-solution. It will not provide investor certainty. It still priorities renewables in the market. And everyone knows an incoming Shorten government will simply up the REG as they have already stated they will. If through a version of re-nationalisation we can immediately terminate the renewable subsidies and climate change targets and inject low cost baseload into the grid a government can look to privatise down the line when things have calmed down and confidence is restored. Until then nothing will change. This is the least worst option.

  45. JC

    David Bidstrup: Is public ownership of electricity assets “socialism” or just common sense?

    Naaa, It is what it is. Socialism.

  46. mh

    No one “in power” seems to have the slightest idea of the damage that has been caused by chucking taxpayers money at the “renewables” carpetbaggers so they can build useless wind farms, large scale solar farms, batteries and the fantastic Snowy 2.0 and then having us pay them for the privilege of ruining the economy. People clap when good power stations are destroyed and we are plunged into chaos. The stupid focus on “climate change”, “emissions reductions” and the vilifying of coal is insane and needs to be fought with all our might.

    I hope you are not counting on the bow-tie brigade. They are quite happy with the status quo.

  47. Entropy

    By also “backstopping” Leo to improve the performance of the firming up investment and also that of the renewables themselves. With fossil fuel of course.

    Renewable advocates are so irony free. And just as free with OPM.

  48. EvilElvis

    The only “firming up capacity” is in the pants of the green left slime when they get their hands on more productive class moolah.

  49. JC

    You don’t require socialism to repair the damage in the energy markets caused by appalling government failure. That idea is ridiculous and doesn’t deserve the light of day on this blog.

    The repairs would be quite easily done too.

    1. Remove every single subsidy to the intermittent crowd immediately and stop lending this sector government funds.

    2. Tell investors that Australian energy markets are open for business and that any group that wishes to build a coal plant will be able to do so on federal land. Undertake that if for any reason the government interferes with the production in any way that is detrimental to producers the agreement will stipulate healthy compensation.

    That’s pretty much all you need.

  50. Arky

    Tell investors that Australian energy markets are open for business and that any group that wishes to build a coal plant will be able to do so on federal land. Undertake that if for any reason the government interferes with the production in any way that is detrimental to producers the agreement will stipulate healthy compensation.

    ..
    For sure in the best of all possible worlds that is the solution.
    This ain’t that.
    If a hypothetical conservative party did that, there still would not be much uptake of private generation due to lead times. Operators know the Labor side would just bring in all that green subsidy shit again.
    No. The author is correct.
    The only possible way to get power generation moving again in this country is in such a way as that to remove it would enmesh future Labor governments in such politically unpalatable moves so that our future supplies are secure.
    You can either pay for inefficient state power or pay for armies of gender studies zombies in a dystopian deindustrialised future.
    I would prefer our zombies at least have to turn up to a power station and clock in every day to get paid.

  51. Bruce of Newcastle

    The problem is that a large proportion of the electricity assets in this country have fallen into ownership of religious organizations.

    If for some reason the Catholic Church wound up owning all the electricity companies in Australia, and decided only to supply electricity to people who don’t support SSM, the howls of outrage would be ear splitting.

    But we are in a position where the Green-Progressive religion owns the electricity industry and only supplies electricity to people who accept their creed. (For example I can choose a plan which allows me to only buy green electricity but I can’t choose a plan which lets me buy only coal fired electricity.)

    For this reason it is acceptable to call for the religious nutters running our electricity grid into the ground to be required to hand over the assets to government. Governments must govern for all Australians, not just for Greens.

  52. David Bidstrup

    There are some interesting comments here as well as the usual frothing about “socialism” and epithets about SA.
    The fact is that our “electricity system” does not work and it seems clear that no one is able to do anything about it.
    A reliable system has been replaced with a dog’s breakfast of piss poor government policy, renewable energy “carpet bagging” and totally irrational fears about climate change and the need to “reduce emissions”.
    The destruction of coal fired power is a threat to everyone whether it is in high prices, less reliability or industry closure because costs are too high.
    There is plenty of evidence that renewables are an abject failure however it has become such a political football that politicians are terrified to step out of line and criticise it.
    I have no objection to privatised generation provided it is regulated properly in a way where government has some control in the provision of an essential service. This is not the case now with state and federal governments competing to see who can be the most stupid and organisations like the one “getting out of coal” sticking up their fingers at us all.
    My point about Playford and his industrialisation agenda was to give an example where a government facilitated industry as opposed to the current situation where the opposite seems to be the case. Clearly the industries that were set up were not run by the government.
    For all their faults, centralised generation systems owned by the state delivered cheap and reliable electricity. The arrival of the power bill did not make folk have to decide whether to eat or pay the bill. The current “market” is a joke where wholesale prices can get to $14,000.00 per MWh. On 18 January 2018, (max temp 42C), SA’s wholesale cost for the day was $68 million when the average per day leading up to it was around $3 million.
    The destruction of Port Augusta and the closure of Hazelwood were totally irrational acts as is the proposed closure of Liddell, and I find it puzzling that some people believe that something worthwhile is achieved by doing such stupid things.
    I do not expect to see this fiasco fixed in my lifetime and have great sympathy for those folk in the future who will be “energy poor” in a country that has an abundance of useable coal. They will wonder how we managed to get it so wrong.

  53. Entropy

    David, the privatised generators delivered the cheapest electricity prices. The price fell and stayed that way after privatisation. There are charts on this very website showing that clearly. Stop saying “For all their faults, centralised generation systems owned by the state delivered cheap and reliable electricity. ”

    It only now seems cheap compared with the stuff up we have now. But it wasn’t. I might agree that government will have to end up owning a new power station and Liddell, but I do not agree with your reasoning, which is an argument for continued and ongoing intervention with a different set of priorities. My reasoning is just that no private player would be so stupid.

  54. mh

    2. Tell investors that Australian energy markets are open for business and that any group that wishes to build a coal plant will be able to do so on federal land. Undertake that if for any reason the government interferes with the production in any way that is detrimental to producers the agreement will stipulate healthy compensation.

    LOL

  55. Pyrmonter

    Pity I’m late to this.

    The ‘Playford led industrialisation’ canard was put to rest by Stutchbury 25 years ago: it’s a nonsense. SA built a ramshackle set of low productivity ‘manufacturing’ (often simply assembly from imported parts) industries protected behind the quota and tariff walls: it did so by channeling public sector investment that might have gone into roads, rail and other infrastructure into ‘cheap’ (subsidised) electrical power, an industry that was soon rorted by the unions so that, by the late 1980s, it employed something like 3 times as many people as were required to provide the unreliable service it did.

    Hayek dedicated the Road to Serfdom to ‘the socialists of all parties’ – it would be worth the while of quite a few latter-day Cats to have a re-read of one of the greatest polemics of the mid 20C.

  56. classical_hero

    IF there were a free market for Electricity, then public ownership of power generators and retailers would be bad, but right now we don’t have a free market. The fact that currently we have massive subsidies that are forced upon every consumer, no matter if they want them or not. The retailers have to buy renewable energy first, which i s not a free market. If we had the ability to choose which sort of energy we want to pay for, then we would have a free market. Fix the way energy gets to the customer. IF people want to pay for “Green” energy, then they should pay out of their own pocket.

  57. Justin

    Even the most ardent free market advocates accept a role for government in instances of private sector failure and for the provision of public goods the private sector won’t deliver (e.g. free healthcare). The whole socialism thing is fake. What is the market currently? It certainly isn’t a free one. It is broke. And the private sector cannot fix it as it is.

  58. tgs

    Art Vandelay
    #2695632, posted on April 25, 2018 at 11:36 pm
    This post can be summed up thusly:

    1) The government has completely destroyed the electricity sector through poor energy policy which has led to rapidly rising prices, inefficiency and unreliable supply.

    2) Therefore the same incompetent and ham-fisted government must nationalise and run the entire electricity sector.

    It takes a special kind of naivety, dare I say idiocy, to think that 2) follows naturally from 1).

    Great post.

  59. John Barr

    It is somewhat of a conundrum. The Government has a duty to provide a cheap service to the Public. The Free Market is supposed to bring cheaper prices through competition, but does it?

    With Energy (Electricity) supplied by the Government there is only one CEO who is paid at the Government Public Service Rate, plus the hangers on, also paid at the current Government Rate.

    Repairing Infrastructure becomes reliant on a Government Budget which will spend the minimum it can get away with, without raising the ire of the Public when the lights go out.

    With a Free Market there is a multitude of CEO’s who all want to be paid at the current CEO Market Rate of millions of Dollars each, plus Bonuses & abundant Perks, before the prices are set. The Infrastructure is kept in “Fit for Purpose” mode, or, “the minimum we can get away with without digging into the Profits.” Also called looking after our investors. Which the CEO’s, really mean, “If we make a Profit our Bonuses will go up & stuff the Investors.”

    There-in lies the problem. Which path do we chose. Personally I think the Government should scrap the Free Market Plan in this case. But it should guarantee that the repair bill will be paid before the Government gets it cut & not be reliant on the Budget.

  60. JC

    David B

    Do you have any recollection of the time we lived with nationalized power supply. The endless strikes, the blackouts due to shortages and also because of strikes? Do you recall how the unions treated those assets as captured capital? Wouldn’t it be better to peddle these wares at say Crikey or some other gullible outfit.

    The problems we have now are caused by acute government failure. Layering on more government is a recipe to disaster.

  61. Dr Faustus

    The Australian electricity ‘market’ has been butchered by government intervention on behalf of Gaia; subsidies to uneconomic generation, favoured technologies, and by permitting renewable rent-seekers to take a free ride on the deliberate destruction of system stability. This is beyond argument.

    The issue of whether government should be involved in generation/distribution is more complicated.

    The economics of a coal-fired power station are driven by three major factors: the cost of construction, the owners’ cost of capital/investment criteria, and the cost of fuel. Operating costs are relatively minor by comparison, forming perhaps 10% to 15% of the cost of sent out power.

    Prejudice aside, there is no intrinsic reason why the capex, or fuel cost would differ significantly between government and the private sector. So the lowest cost of power becomes an exercise in cost of capital – competing a government cost of capital of ~6% against, say, AGL with an implied investment hurdle rate of at least 13% (2017 annual report).

    The same investment considerations apply to poles and wires.

    Take away all subsidies and market distortions and that’s the game the private sector needs to be able to play in to deliver cheapest power.

  62. Oh come on

    Do you have any recollection of the time we lived with nationalized power supply. The endless strikes, the blackouts due to shortages and also because of strikes? Do you recall how the unions treated those assets as captured capital? Wouldn’t it be better to peddle these wares at say Crikey or some other gullible outfit.

    In WA we’ve got to a post-strike situation – I spoke to a coal miner at the mine that fuels the Muja power station in Collie. This guy proudly claimed they’ve got the state government by the balls – they make a large pay demand, they threaten to strike if they don’t get their way, the state government figures it’s cheaper to cave than enter into industrial action that could disrupt the power supply. These guys don’t give a crap about a strike being ruled illegal by the IR tribunal – they’re willing to walk off the job anyway and they know the state will cave before a ruling is handed down against them.

  63. Rafe Champion

    Justin the private sector used to deliver free health care to people who could not afford to pay. That was the honorary code of medical practice for doctors. That was destroyed by the Whitlam’s socialist reforms because the voluntary provision of free services by doctors was nasty and degrading charity unlike the entitlements provided by the government with other people’s money.

  64. Bon

    Entropy
    #2695414, posted on April 25, 2018 at 7:30 pm

    Absolutely correct Entropy. It is not because the electricity authorities were privatised that we now find the orderly, efficient supply of electricity in Australia in such a disastrous mess but rather because governments have been unable keep their grubby politically motivated fingers from meddling in the electricity market.
    In its infancy the privatised electricity industry was working well in what was then a reasonably free, orderly national electricity market (NEM) but now the NEM has become just one more cog in a morass of government bureaucracies set up to oversee the mandated destruction of reliable economic generation and the doling out of mandated, electricity user funded subsidies to a conga line of assorted rent seekers. Companies like AGL would not be able to game the NEM as they do now had it not been for the egregious market meddling of successive state and federal governments.
    All justified of course on the fig-leaf pretext that little Australia, with its 1.3% of world CO2 emissions, can by destroying its once reliable affordable electricity system, and with it the prosperity of the country, somehow have an influence (albeit immeasurable) on world temperature 100 years from now. This fantasy of course all predicated on the dubious validity of the catastrophic, man-made, global warming orthodoxy.
    With the destruction of the Australian power industry all but complete, it could be that rapid, direct intervention by government into direct ownership/operation of base load generation (e.g. Liddell for starters) is the only thing that can prevent the Australian eastern grid from collapse. This could form a stop-gap first step until the current NEM mess is unwound and restored to an efficient, free market without political interference. But then what rational investor would stump up the odd billion or three to invest in a market where we see the specter of soon to be elected “50% renewables” Bill Shorten and his Labor/Green coalition…….
    What was that Paul Keating said about a banana republic?

  65. stackja

    Liberty Quote
    No politician is any longer interested in the question whether a measure is fit to produce the ends aimed at. What alone counts for him is whether the majority of the voters favor or reject it.

    — Ludwig von Mises

  66. Dr Fred Lenin

    Power in Australia was good and cheap till the polliemuppets started messing about tt get preferences in elections . to keep their miserable little “careers “ going its the only way those useless articles can make a dollar. Preferential and compulsory voting have a lot to answer for in Australia.

  67. EvilElvis

    John Barr, lay off the crack pipe, old salt.

  68. classical_hero

    Rafe, that was the recollection of my mother, who was a nurse before she had me in 1978. She absolutely hated Whitlam for what he did. Right now private health is unaffordable.

  69. nemkat

    …the idiots that followed after Playford ended his career after 36 years as Premier…

    An endless supply of idiots.
    You’ve posthumously promoted Playford Premier for an extra decade there.
    His reign spanned 1938 to 1965, 26/27 years. Still a hell of a long time.

  70. The major issue is that the politicians have no motivation to fix the mess we’re in.
    They have plenty of motivation to continue the mess we’re in – post political career jobs in government/private enterprise.
    The prospect of being hung/decapitated/shot/incinerated in the morning has a wonderful way of focusing the mind on doing their frigging jobs.

  71. Let me just add – I have no solutions that would fix the problem, but I didn’t create them either. If I spill a coffee on the floor then it is my job to clean it up. In the same manner the political elites who spilled this particular bucket of pus can bloody well work out how to clean it up.

  72. JC

    Nationalized energy production ends up with the old Soviet/Nazi economics model problem. How do you derive the optimum price. In fact how do you even price something. The Nazi regime used to gather price information from the UK to figure out where to price goods. It doesn’t work and will never work… and our current fascist model of government intervention through diktat won’t either.

  73. RG

    The government should not own any power stations. They are useless and extremely inefficient in running any industrial enterprise. What they should do is: stop all forms of subsidy schemes (renewable comes to mind) and introduce effective and punitive anti-monopoly polices.

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