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Consumers pay up for power privatisation

Consumers are worse off since Australian states decided to privatise their electricity assets, according to think tank, The Australia Institute.

A report released today shows that since Victoria privatised power in the 1990s, electricity prices have outpaced inflation, increasing by 170% compared with an increase of 60% in the consumer price index (CPI).

Falling productivity is being blamed for most of the rise, with power companies employing rising numbers of managers. Since 1997, the number of managers in the electricity sector has jumped a staggering 217%. Yet, at the same time, there has been a much smaller increase in front line staff, with the number of technicians and trades workers increasing by just 28%.

Over the same period, the number of sales workers has risen from 1,000 to 6,000. The report’s author, David Richardson said, “It seems remarkable that a sales force of 6,000 people is necessary to sell a product which everyone needs.”

During the privatisation of Victoria’s network a lot of promises were made that it would deliver lower prices and a more efficient industry. NSW and Queensland are looking at privatising their state’s power assets, but it appears unlikely that it will ease cost of living pressures, and much more likely to consign consumers in those states to even higher bills and worse service.

In December last year, AGL Energy (ASX: AGK) announced plans to increase prices by 10.4% from the middle of this year, following price rises by competitors Origin Energy (ASX: ORG), ERM Power (ASX: EPW) and Australian Power and Gas Company (ASX: APK) in response to the introduction of the carbon tax.

According to the Australian Financial Review (AFR), the average household energy bill has risen 80% over the past five years. No wonder complaints over energy bills have soared 43% in NSW in 2012.

Foolish takeaway

Power companies have also been accused by state governments of ‘gold plating’, or over-spending on their network upgrades. As we wrote in November and December last year, the real issue is that privatisation of energy assets hasn’t worked so far, and consumers are bearing the brunt of that mistake.

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