Are you concerned about the State Government’s Power Privatisation Plans?
When the Government proposed selling the Snowy Hydro Scheme to private enterprise, I strongly opposed the sale. I also spoke to friends in high places about my feelings. I was delighted when John Howard stepped in and stopped the States from selling Snowy Hydro Ltd. Later, I was appointed to Chair an important Inquiry into how the Snowy could be retained in public ownership and still replace its aging infrastructure, produce peak-load electricity, explore rain making for the roof of Australia and provide adequate water for irrigators down stream. The results paved the way for a future for the Snowy. Now we are facing Government plans to privatize the State’s power resources. Why? In two weeks I will vote on this issue. Are you concerned about it? Do you understand it?
The Background
On 10 December 2007, the NSW Government announced changes to the electricity industry following the Inquiry into Electricity Supply in NSW undertaken by Curtin university economist, Professor Anthony (Tony) Owen. Professor Owen stated, “My key recommendation, therefore, is that the Government of NSW divests itself of all State ownership on both retail and generation.” (Report of the Owen Inquiry into Electricity Supply in NSW 11/9/07)
So the NSW Government announced it would:
1. Lease existing electricity generators to private operators, while keeping them in public ownership;
2. Retain the ‘poles and wires’ assets of the State-owned companies Energy Australia, Integral Energy and Country Energy in Government ownership, while their retail lists and functions would move to private operators; and
3. Introduce a number of safeguards to protect and create jobs, keep prices as low as possible and protect the environment (www.dpc.nsw.gov.au)
Since the release of the Owen Report, the NSW Government has undertaken extensive analysis and consultation with key stakeholders including unions on a range of issues including:
1. Protecting household consumers from volatility in power prices as a result of price deregulation;
2. Ensuring ongoing job security for all current state energy workers;
3. Protecting the environment in line with securing our future energy supply; and
4. Progressing development applications for potential power station sites.
Why is the Government reforming the power industry?
1. Energy consumption in NSW is forecast to increase to 91,000 Gigawatt-hours (GWh) a year by 2013-14, an increase of 10,500GWh from 2006-07.
2. NSW’s innovative energy efficiency measures such as BASIX, Energy Savings Action Plans and the Greenhouse Gas Abatement scheme, are currently playing and will continue to play, a significant role in reducing energy consumption.
3. Renewable energy and other small-scale generation are forecast to provide over 1,500GWh of the 10,500GWh needed.
4. The Owen Inquiry found the remaining 9,000GWh required annually by 2013-14 is likely to be met by gas- or coal-fired generation. Other technologies such as solar or geothermal are expected to contribute significantly in the longer term.
The cost to NSW taxpayers
The impact on NSW taxpayers of the State-owned generation corporations building the required additional baseload could be up to $15 billion over the next 10 to 15 years:
$7 to $8 billion for new generation;
$2 to $3 billion to maintain the viability of retail businesses; and
$3 to $4 billion to retrofit existing power stations with carbon reduction technologies.
The Government is already committed to a record $110 billion investment in infrastructure over the next decade. The ratings agencies have indicated there is little room to further increase infrastructure spending without jeopardising our triple A credit rating. (www.dpc.nsw.gov.au)
Reasons for Power Privatisation
1. The privatisation plan by the NSW Government is expected to save NSW taxpayers up to $15 billion over the next 10-15 years, at the same time as ensuring electricity supply and reliability keeps pace with growing demand. Priority areas for any opportunity for new investment will be: Urban transport initiatives including Euro-style metro technology and the extension of the M4; Rural water and sewerage infrastructure upgrades; Rural and regional road transport infrastructure; Energy efficiency strategy announced; and Supporting development of clean energy including clean coal and renewables.
2. Electricity is essential to our lives. It drives our economy, creates jobs and ensures that we are competitive on a world scale. We need to act swiftly to ensure that NSW is prepared to add additional baseload generation capacity by 2013-14.
3. Australia’s energy sector is one of the most competitive and efficient energy sectors in the world. While Australia has been well served by its energy sector in the past, further reforms are necessary both to maintain productivity improvements of Australia’s energy sector and to better equip it for the future. (www.erig.gov.au)
4. According to International Energy Agency (2005), Australia appears to have some of the lowest electricity prices in the developed world. Industrial electricity prices are 38% below the IEA average and household prices are 31% below the average across the IEA countries. The IEA considers the Australian electricity market to be a model that other countries could follow: “Australia was one of the pioneers in energy sector microeconomic reform and should be commended for its vision and implementation of a liberalised (electricity) market. Australia now has one of the most transparent and competitive electricity markets in the world and could serve as a model for other countries.”
5. Consumers will be protected with regulated prices by the IPART (Independent Pricing and Regulatory Tribunal of NSW) for households and small businesses for a further three years – to 2013, or until the Government is satisfied there is effective competition to keep downward pressure on retail electricity prices.
6. According to the Premier, the Government would also continue its strong regulatory role to ensure the range of consumer protection measures, including social programs for pensioners and hardship measures are maintained.
7. Victorian consumers are paying less for electricity now than in the days when the state government owned and ran the power industry. The Essential Services Commission report found households in Victoria are paying between 3.1% and 6.2% less for power than before privatisation, depending on the level of usage. The ESC report found a high level of competition in the Victorian industry, with more than a quarter of small customers choosing to switch retailers last year. ESC chief Paul Fearon said the commission’s independent assessment was that the privatised power industry in Victoria had performed well for consumers. (www.esc.vic.gov.au)
8. Unless retail and generation are privatised in NSW, it is unlikely that investment needed in new generation will occur in a timely way. Future energy investment by the private sector will face too much policy and market uncertainty if government ownership continues to dominate the retail and generation sectors.
Reasons against Power Privatisation
1. According to UnionsNSW, the State’s power industry would be in the hands of Big Business in Hong Kong or China. The potential buyers are TruEnergy, AGL or the Chinese Government.
2. NSW does not need a new baseload power station. Reducing demand for energy through improved efficiency, energy conservation, and reduced consumption will keep the lights on and reduce costs to consumers, without massive investment in new large generators.
3. One of the main reasons against the selling of the State’s power industries is the tendency for price manipulation by private companies when generation capacity is low and a reluctance to increase capacity (and thereby lower prices) for energy users.
4. The experiences of Victoria and South Australia show that power industry privatisation led to higher prices for households and industry and resulted in increased blackouts through lack of critical infrastructure maintenance.
5. The State Governments of Victoria and South Australia found privatisation attractive, despite public opinion, because it promised a short-term influx of money into government coffers. A primary political motivation for privatisation in the states of Victoria and South Australia was debt reduction. However, although state debt fell from $76 billion in 1993 to $47 billion in 1997, taxpayers were often not any better off, particularly with respect to electricity privatisations. (Beder and Cahill 2005: 6). In the early 1990s, the Victorian State Government had such a large government debt ($32 billion) that its credit rating was downgraded by international rating agencies. Privatisation was a tool for reducing government debt and therefore taxes and charges to business. Moreover, Professor Beder, Research Fellow from The University of Wollongong, debunks the myth that the state’s triple-AAA credit rating is at risk by keeping the industry in public hands, even if it requires the government going into debt in order to invest in infrastructure. That’s because this infrastructure generates income and the NSW Government is able to support the additional debt involved.
6. Victorian consumers faced a 17% rise in the power bills from 1 January 2008, taking the cost of electricity for an average family in Victoria from $945 to $1106 a year (West SMH 02/01/08). The Kennett government privatised Victorian electricity in the mid-1990s and TruEnergy now controls a large segment of the market. Electricity prices in South Australia increased by 40% between 1994 and 2002.
7. Under the plans pushed by the Premier and his Treasurer, Michael Costa, prices will be regulated, but only until 2013, when free market forces will operate. A survey of 1011 NSW voters, conducted by Essential Research for UnionsNSW, found 85% of people oppose privatising the electricity supply, while 96% fear private operators would force up the cost of electricity (West and Robins SMH 19/12/07).
8. Another major consequence of electricity privatisation has been heavy job losses. Between the mid 1990s and 2003, employment in the sector fell from 83,000 to 33,000 (Wilson 2003). For example, CFMEU’s John Maitland noted: “Electricity privatisation has led to the rise of contract labour in the electricity industry which has undermined union power and resulted in inferior wages and working conditions.” Furthermore, those communities built around the electricity industry have been particularly hard hit by electricity privatisation. Victoria’s Latrobe Valley experienced job losses of 16,000 as a result of privatisation.
9. According to Ben Kruse of the United Services Union, “Private providers are not in the business for the long haul…the employment protections tend to disappear”. Privatisation would result in lower standards of customer service. TruEnergy moved 200 billing and sales jobs from regional Victoria to India.
10. The idea of building another power station ignores the State Government commitment’s in reducing greenhouse gas emissions, which aims to cut to 2000 levels by 2025. NSW accounts for about 28% of Australia’s total emissions, which means that it will shoulder the biggest burden of any greenhouse gas reductions. NSW’s biggest emitters are its power stations, which contribute to 10% of the nation’s emissions, or more than a third of NSW’s total. (Coultan SMH 25/01/08)
11. Competition in the state’s power industry would inevitably result in mergers and acquisition (seen in AGL’s failed attempt to merge with Origin Energy in early 2007). These increase horizontal and vertical integration and private monopolisation of the energy market by powerful transnational energy conglomerates. Such integration has allowed for the manipulation of wholesale prices, thereby exposing energy users to fluctuation in prices.
12. Customers will also soon have to call two separate organisations for electricity needs. A Government owned corporation responsible for power lines, poles and substations, will handle maintenance. Retail and billing will be handled by at least three private operators, competing for customers.
How can you influence what happens
If you understand the issue and have read the arguments I have presented for and against, you can effectively influence what happens. Members of the major parties and the Greens have no option but to vote as their party tells them. But the Shooters Party and the Christian Democratic Party can vote in accordance to their conscience and the expressed wishes of their members. If you want me to know what you think then email me today. Make it brief and give me your reasons. I will read your concerns and take them into account. I may also print them in coming weeks for others to read.
While I will listen carefully to the Government argument to sell and privatize the electricity system, I am under no obligation to support them as others may be and at this stage will probably vote against the proposal. But I will read your opinion. So email me at gordon@gordonmoyes.com today (do not ring – I cannot handle all of the calls).
While the leasing of power generators and distribution can be achieved without legislation, any sell-off will need the approval of Parliament. This crucial issue will be discussed in the first week of sitting. As a democratic party, I invite you to voice your opinion, concerns and perspectives on the State’s power privatisation plans before making my decision on the future of the power industry in NSW in what could be a very even vote.
Rev The Hon. Dr Gordon Moyes, A.C., M.L.C.
References
Beder, S., and Cahill, D. (2005), Regulating the power shift: The state, capital, and electricity privatisation in Australia, Journal of Australian Political Economy, 55, June 2005: 5-22
Coultan, M., Iemma too stupid or too proud, The Sydney Morning Herald, 25/01/08
International Energy Agency (IEA) 2005, Energy Policies of IEA Countries: Australia 2005 Review, OECD, Paris
Maitland, J. (2001), Is corporatisation a viable alternative to privatisation, CFMEU website
Owen, A. (2007), Report of the Owen Inquiry into Electricity Supply in NSW, Sydney
Salusinzky, I., Costs lower for privatised power, The Australian, 15/01/08
West, A., Unions warn of high power bills, The Sydney Morning Herald, 02/01/08
Wilson, N., Power to the People, The Australian, 26-27/04/2003
www.dpc.nsw.gov.au
www.stoptheselloff.org.au
www.erig.gov.au
www.esc.vic.gov.au
