NSW electricity prices: up, up and away

Electricity network prices and household bills are on their way down in NSW and will continue to fall as a result of the AER (Australian Energy Regulator) determination.

The relates to the November 2014 draft determination of prices in NSW indicating they will fall over the next five years.

Fall regardless of whether the utility is privately or publicly owned. And why not?

After all, returns to utility owners are a function of their investment. The bigger the asset base, the better the return they are entitled to. This system encourages overinvestment in assets so as to maximise the returns through higher prices.

In NSW, billions of taxpayer dollars in the last few years were invested in the industry, reaching a peak in 2012 that gave rise to bill shock statewide amongst electricity consumers. It's now time for prices to fall as the investment cycle has slowed down considerably.

If the assets are sold (sorry, I'll use the palatable verb, "leased") what happens at the next round of price determinations?

Given by then the NSW government will be far less involved in the energy industry and perhaps busy focussing on selling off Sydney Water or profitable parts of the rail network, we can assume that the loudest voices in the regulator's corridors will be those of the new owners of the networks.

It's hard to conclude prices will do anything but soar in the medium to long term.

Currently NSW consumers receive electricity bills comprising two components: a fixed charge for the network's poles and wires carrying electricity to the home in addition to a usage charge for the energy actually consumed. I say get ready for an additional new "rental" charge for the electricity meter every customer has on his or her property. After all, a savvy new owner will surely attempt to bypass any thought of fleecing customers, when he can skin them.

When another Sydney based monopoly, Kingsford Smith Airport was sold in 2002 by Prime Minister John Howard to Macquarie Bank, guess what happened? Prices rose.

A tax of $3.50 per taxi ride was levied; the dedicated public bus from Darlinghurst to the terminals was axed and car parking rates skyrocketed. Today, 30-minutes of car parking near a terminal at KSA costs four times what it does at Newark Liberty Airport that serves New York City.

Surprise, surprise, the City of Newark, New Jersey and not a profit-motivated monopolist owns that airport.