THE electricity market is a complete rip-off, says the former boss of ETSA, Bruce Dinham. In his own words, he explains that it has been set up purely to maximise the profits of power suppliers.

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WE complain about high electricity prices but ignore one of the main causes - the so-called National Electricity Market.

It is not a market at all but more of an arrangement for maximising profits rather than reducing costs - and it is seriously flawed.

When this arrangement was introduced, key features of electricity supply systems seem to have been ignored or not understood.

Features of such systems are that they are: 1) inherently vertically integrated with a style of management control united by a common owner; 2) have several essential operating features; and 3) cannot be run in separately managed parts.

The old Electricity Trust (ETSA) was an integrated organisation.

Splitting it into a number of separately owned parts created problems, the effects of which are now manifest as flaws in the present arrangement.

To deal with the number of separately owned generators, a system of bidding was introduced to derive what is called a spot price, which determines the amount generators are paid. The theory is that bidding is competitive and produces lower prices. The reality is that it does the opposite.

There is normally no competition and the bidding system simply allows generators to manipulate prices for their own benefit.

There is no competition, nor should there be. This is because a properly managed electricity supply system would aim to have enough firm generating plant available (wind and solar-voltaic are not firm) to meet the likely maximum demand, plus a margin for maintenance and breakdown.

There would be little or no spare capacity for competition.

A competent system operator would or should know the relative efficiencies and costs of generators and schedule them accordingly, with prices set from known and proven cost factors, not sham bids from profit seekers and speculators.

Effects of the flawed bidding system are aggravated by a ridiculously high bid ceiling set at $12.50/kWh, CPI indexed. For comparison, the final selling price to consumers is about 30 cents/kWh.

The $12.50 amount is said to be needed to enable generators to recover fixed costs. However, with the range of factors involved, together with the fact that generators can manipulate prices, a definite figure is indeterminate. The $12.50 is arbitrary and questionable and in itself shows that the bidding system is a farce and easily manipulated.

This extreme amount also applies automatically if there is a breakdown or shortage of generators.

As well as being open to exploitation with questionable shortages and breakdowns, it also introduces an unnecessary and undesirable element of risk, leading to hedging and trading in financial derivatives by retailers, adding to costs passed on to consumers in retail prices.

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Retailers themselves are an unnecessary cost.

They do not own or operate any part of the generation, transmission or distribution systems and contribute nothing to the production and delivery of electricity.

The argument that they give choice of supplier is spurious. The only choice they give is who sends your electricity bill.

The electricity you get comes from the same generator, through the same wires and the real cost, as distinct from some manipulated and inflated price, is the same regardless of who your retailer might be. Retailers are essentially parasitic and there is no real need for them, other than for billing and account collection purposes, which could be done by the distributor.

The National Electricity Market is seriously flawed and an expensive shambles with a bloated attendant bureaucracy.

It is an empire builders' paradise, the extent of which can be judged from the string of acronyms of organisations with fingers now in the electricity pie - NEM, SCER, AEMO, AER, AEMC, NEL, NREL, ACCC, and ESCOSA.

Once upon a time in South Australia we had just one, ETSA. Now in SA there are, as well as this extensive bureaucracy, six separate generating companies (not counting wind and solar), two transmission, one distribution and 11 retailers, each with a main aim of maximum profits for their local and overseas shareholders.

It is no surprise that electricity prices have gone through the roof.

The question needs to be asked: Who benefits from this arrangement? It is certainly not electricity consumers, so why would any responsible government promote it?

The Commonwealth has no constitutional authority or responsibility for electricity supply in the states so the arrangements under which this so-called national market operates derive from states' legislation. It is up to the states, particularly South Australia, to take the lead in getting rid of this blatant and egregious rip-off of electricity consumers.

Bruce Dinham is the former general manager of ETSA.