Should Greece Restructure and Privatize its Power Company?
PPC is right in a very narrow sense. In 2011, Greece’s residential tariffs were the fourth lowest in the European Union and 23% below the EU-27 average (excluding taxes). But that is not the whole story. The state regulates prices, so it’s not hard to mandate that prices remain low. Therefore, the price level itself is not a very useful guide. How should we, instead, think about prices?
First, retail tariffs have not increased according to fuel costs, as they should in a market system. As the International Energy Agency (IEA) notes in its 2011 Country Report on Greece: “The tariff system has caused several distortions in the electricity market. The average wholesale price of electricity tripled from 2004 to 2008, but the regulated end‐user tariffs were increased by only 40% for industrial users and by 25% for households.”
Third, the regulated tariff does not cover the cost of electricity production. In a November 2007 strategy presentation, PPC claimed that the gap between the company’s revenues and the real market price for electricity was 25%. So this is another reason to not cheer about low prices: if they cannot cover the cost of production, they are unsustainable.
Fourth, PPC is expensive to run. Take payroll: the company’s staff has fallen from 31,645 in 2000 to 20,821 in 2011, a 34% drop. Yet, its payroll has risen by 23% in the same period – in fact, its payroll had risen by 66% by 2009 before it came down. These numbers mean that real compensation for PPC employees rose by 75% between 2000 and 2009 and by 29% in 2000-2011. By contrast, compensation in the Greek economy as a whole was up 15% and 4% respectively in the same period. PPC employees are doing very well, so why not take that extra cost in salary and give it back to the Greek consumer?
Seventh and linked to the sixth, is the significant carbon intensity of the Greek economy which is due, in large part, to the heavy dependence on coal for power generation. Greece’s carbon intensity per unit of energy is 25% higher than the EU average. Besides the obvious implication for climate change, this also exposes Greece in general, and coal-fired generation in particular, to significant cash costs to buy emissions permits to keep polluting. As the IEA notes, “lignite‐fired power plants in Greece emitted an average of 1 tonne of CO2 per MWh generated in 2009, whereas the gas‐fired plants emitted 350 kg of CO2 per MWh.” This is again a looming cost for the Greek consumer.
Ninth, PPC’s dominant position distorts the market for wholesale power and prevents any meaningful competition from emerging. So without a reform of PPC, the power market cannot be reformed in any meaningful and the new investment that the country needs to meet its power needs will always lag what would have been possible if PPC did not have a dominant role.
One of my earliest memories when I went to college in the United States was furiously unplugging my laptop when I heard thunderstorms outside. My roommate looked at me and was puzzled: “what are you doing?” I said I am protecting my computer because we will lose power.” He gave me a perplexed look. It turns out that this is not quite what happens in America.
Deregulating the power sector is a serious debate and one that requires a focus on getting regulation right and on ensuring that we do not replace a public monopoly with a private one. But PPC is intimately connected with lights going out during inclement weather and with the A/C doing down in the midst of the summer heat wave. Sometimes, this happens because the power company cannot do its job. But sometimes it happens because its bullies in the labor union want to send a message to the rest of us. They get paid too much money to be sending those messages and to be bullying anyone. It’s time to end this farce.