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Monday, July 18, 2005

Privatise Energy

Socialised energy is a danger

by StFerdIII

Socialised energy is a danger
July 16 2005

It is not enough to wall off health care, education, banking, transport, lumber, fishing, telecommunications and culture from competition, but of course power and energy, the infrastructure engines of a modern economy need to be socialised as well. Governments in Canada and in parts of the US control and mismanage energy, and through their incompetence have ensured the degradation of the power system infrastructure. As with any socialised system economic incentives do not exist – either on the supply side to build new technologies and infrastructures – or on the demand side to use less, through new technological enhancements and paying a real price for the use of energy. Subsidizing energy and aping what the Soviets did to keep their citizens happy, is not smart economics and dangerous demagoguery, as the system literally falls apart as industrial, population and device growth, dramatically increase.

Sorry socialists but energy is not a public good or a human right. Reform of the energy sector is necessary but it cannot be done piecemeal. Any slight tampering with such interventionist control through limited market incentives – a la California – will of course result in price and supply distortions. Fooling around with little half measures is not privatisation. We need real deregulation along the complete energy supply chain not just in certain areas or in small pieces that are politically viable and ‘sensitive’. In most North American jurisdictions politician’s cap energy prices to buy votes and subsidize business. The result is predictable – generation, transmission, and distribution improvements, investments and expansions are non-existent. There is simply no business case to invest in the electricity and power sectors in many areas across North America.

Ontario is a classic example of market ‘mis-anthropism’. Hatred of the market runs deep in most of Ontario and the energy debate is no exception. More than 40 % of Ontario’s power comes from fast aging nuclear power sources. The last completed nuclear station – Darlington – was $11 billion over budget and cost a total of $14 billion. That’s efficient social engineering at its finest. To cover the Darlington costs would necessitate an increase in energy prices and no good left of centre vote hungry government is going to do that. So the $11 billion just gets added to off balance sheet debt to be paid for later by another generation. In addition 20 % of Ontario’s power comes from ageing and soon to be closed coal fired plants which are in most cases energy efficient and clean burning. But in the rush to buy votes such niceties are ignored. It is also unclear what will replace these coal plants since eco-fascist regulations and lobby groups will more than likely make nuclear investments a non-starter.

So now we have another leftist Ontario government with a two-tiered [oh no not two tiers !!!], fixed price system for consumers and business. This is more socialist lunacy. By not freeing up the entire monopoly supply chain of generation to retail energy provisioning, we are assured that system revenues will never match costs, natural price points will never exist and no new infrastructure will be built outside of over-budget, mismanaged government projects a la Darlington. Besides massive debts, Ontario needs incredibly to import 10-20 % of its power needs from Manitoba, New York, Michigan and Quebec. This is hardly the energy policy of an adult jurisdiction.

So what are adult jurisdictions doing? In the UK the power and energy system was privatised in 1990. Now the Brits enjoy a per capita savings of U$200 today vs. rates in 1990. It is a 32 % reduction after inflation. On top of this the average consumer that shops around for electricity prices saves an additional U$60 per year through rate and service selection and competition. In the US, many energy markets have some sort of deregulation with the most successful being the PJM [Pennsylvania, New Jersey, Maryland], system. Prices in recent years in the PJM system have dropped by more than 50 %, even as usage has increased. New power generation investments, due to free market pricing, ensures that PJM will meet escalating demand through market competition. In Australia the same story has unfolded in the state of Victoria and the southeast in which privatisation resulted in a massive explosion in power generation investment and a drop of 30 % in retail prices. In Alberta from 1998 to 2004 the energy efficiency of the economy based on the amount of power sold increased by 40 %. Prices increased by less than 3 % though oil and natural gas prices have gone up by 50 % and 40 %. Rising investment in new capacity dampened the increase in prices and enabled private firms to expand the infrastructure to meet demand.

Lower prices and better service and infrastructure are not the only benefits of private power. By selling energy assets the government will reap a one time windfall for the sale of the state owned asset. But governments will also realise tax benefits from expanding revenues, investments and usage. In the UK for example governments currently bring in an extra U$15 billion per year in taxes from private energy firms in addition to the one time revenue gain of U$40 billion on the sale of the public energy assets. Now awash in cheap energy with a robust infrastructure the UK and its populace enjoy the fruits of increased taxation revenues.

Like all truly effective competitive market systems there is nothing bad, evil or disingenuous about private energy grids. Yet in the Canadian and US media you will hear nary a word on successful privatization of energy systems worldwide, only more moaning about the ‘social costs’. Little minds whinge on the CBC and CNN that private energy systems have a bad track record [sorry but California had nothing to do with market privatisation], have higher prices and are not socially responsible. Bull puddy. Like all market systems, investments and infrastructures are built to match supply with demand and then match price points to consumer needs and expectations. Pretending otherwise is a socialist fallacy that ranks alongside the fetid observations of Marx on the iron law of capitalist self destruction.

It is reprehensible in the modern world, with the vast amount of learning, experience and proven case histories, that we allow governments to socialise and then mismanage our energy sectors. Unless the North American grids are freed up from government destruction another dark, nasty August 2003 energy blackout is just a matter of time. In the meantime energy debts just keep getting higher and the price to pay for modernization just keeps escalating. ©

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