EDITORIAL: by Peter WestmoreNews Weekly
NSW electricity to be privatised?
, March 29, 2008
The sale of NSW's power infrastructure could earn the Morris Iemma Labor Government a windfall of up to $20 billion.Ten years after the NSW government last attempted to privatise the state's electricity industry, the NSW Premier, Morris Iemma, is pushing through a plan to privatise one of the state's remaining public utilities, the state's electricity generation.
Although most of Australia's electricity infrastructure has been privatised over the past 15 years, public opposition has prevented the sell-off of Pacific Power, the government-run generator of most of the state's electricity.
The privatisation of electricity commenced under the Hawke-Keating Labor governments in the late 1980s. It was aimed at introducing competitive pressures into the state-owned electricity-generation industries, first by making the utilities operate in a fully commercial environment, and later by selling these corporate entities to private sector investors, usually foreign-owned electricity-generating companies.
Independent examination of the operation of Pacific Power has shown that, in the period of its corporatisation, very substantial economies were effected.Real costs
The Industry Commission, in an inquiry into electricity generation in NSW about 12 years ago, found that "Pacific Power has achieved substantial efficiency improvements in recent years. Its 1994 annual report noted that the real average price of its electricity fell by 5.6 per cent between 1992-93 and 1993-94 to one of the lowest in the world for coal-fired generation. Its real costs of generation and transmission were reduced by one-third between 1988-89 and 1993-94 (New South Wales Government Pricing Tribunal 1994, p.83).... In an environment of lower prices and cost containment, profit increased to $779 million in 1993-94 and debt was reduced by $540 million."
However, when the Carr Labor Government in 1997 proposed the full privatisation of the industry, there was a massive public outcry - and not just from the power industry unions.
A subsequent government inquiry, chaired by Bob Hogg, recommended the privatisation of the industry; but, in the face of widespread opposition, the government backed down.
The fact that the proposal has resurfaced is a measure of the desperation of the NSW Labor Government to try to cash in on the state's power infrastructure, which has been estimated to be worth between $15 and $20 billion.
The fact that the people of New South Wales have already paid for these assets. and will have to pay higher electricity charges to the new owners, is part of the reason why so many people in New South Wales are opposed to the move.
The experience of other states, where the industry has been privatised, provides further reason for caution.
Since privatisation, there has been a decline in the rate of construction of base-load power stations in Australia. In Victoria, for example, there have been no new base-load power stations constructed since the Loy Yang B station went on line in 1996, although power consumption has grown by over 40 per cent since then.
The reason is obvious: power generators make the largest profits on peak-load power, which can be generated from smaller and cheaper peak-load generators running natural gas rather than coal.
Additionally, the benefits of efficiencies of production have largely been passed on to large corporate users, rather than home-owners, who have faced steadily mounting costs for electricity.
The problems of inadequate power generation are particularly acute in South Australia, which is facing chronic shortages of locally-generated electricity, that can only be relieved by importing power from Victoria, Tasmania and New South Wales.
It can be argued that, unless Australia is careful, the privatisation of electricity will lead to a crisis similar to that suffered in California in 2001, when soaring demand and market manipulation by electricity generators led to a near-meltdown.
California's Governor, Gray Davis, described the situation in these terms: "California's deregulation scheme is a colossal and dangerous failure. It has not lowered consumer prices. And it has not increased supply. In fact, it has resulted in skyrocketing prices, price-gouging and an unreliable supply of electricity. In short, an energy nightmare....
"We have lost control over our own power. We have surrendered the decisions about where electricity is sold - and for how much - to private companies with only one objective: maximising unheard-of profits."
Loretta Lynch, the former chairman of California's Public Utilities Commission, said: "Deregulation is not appropriate for a fundamental economic necessity like power, which we need every second of every day. Not only do families need it, but businesses need it as well. It's like deregulating water or air, although at least water can be stored. Electricity can't: you have to use it when you make it. It also costs a lot to build a power plant to bring more supply on line. As the Enron tapes showed, by turning off one little plant in Nevada, you can bring the lights down all over Southern California." (UC Berkeley News
, April 23, 2005).
Have we learned the lessons?- Peter Westmore is national president of the National Civic Council.