Mulling a premier's power price play

The wires are humming in New South Wales – the ones that conduct rumours, that is.

Their focus is the other wires: the quarter of a million kilometres of cables used by three government-owned distribution businesses along with 200,000 transformers to link power station output to about three million residential and business customers in the state.

The immediate public debate is about what former top state Treasury bureaucrat Michael Lambert has described as a "lost golden opportunity” to sell the three distribution networks – operated by Ausgrid, Endeavour Energy and Essential Energy (formerly Energy Australia, Integral Energy and Country Energy before the late Labor government sold their retail arms and their names) – for as much as $30 billion.

Almost the only reason for not auctioning the networks is that Barry O'Farrell, despite staring a huge victory in the face, got spooked before the March 2011 state election and pledged that he wouldn't do it.

Also to the point is that, while O'Farrell trashed Labor in the poll for the Legislative Assembly, the election left him without a majority in the Legislative Council and therefore no certainty that reneging on his promise would bring him legislative success.

He is less constrained in the generation sector of electricity supply and has already indicated an intention to sell off Macquarie Generation, unaffected by the Keneally government 'gentrader' deals, and what's left of the value of Delta Electricity and Eraring Energy.

Lurking in the background is Snowy Hydro, which the NSW government owns in partnership with the federal and Victorian governments, and which is said to have a total value of about $5 billion.

However, the rumour wires are also vibrating with talk about what O'Farrell plans to do with the electricity distribution businesses even if he doesn't flog them to the highest bidder.

Beancounters are reportedly swarming over the distribution trio in searching of expenditure savings to enable O'Farrell to deliver balm to the painful hip-pocket nerves of consumers.

The target in the form of a rebate for residential power customers is said to be in the region of $400 million, with the largest chunk to come from the biggest business, Ausgrid, the largest network service provider in the country.

Power bill increases bedevilled the state Labor government over the last quarter of its long reign.

As they went up by 41 per cent across Australia from 2007 to 2011, they also rose in NSW by 43 per cent after politicians and regulators kept them virtually flat in the 1990s and passed on only modest increases in the early 2000s.

The witching hour for O'Farrell comes on June 12, when the state pricing regulator produces its final report on power bills for 2012-13.

It has already signalled increases of up to 10 per cent for the majority of households and small businesses in the state – and that did not take into account the impact of the federal carbon price.

The political trick for O'Farrell and his Treasurer, Mike Baird, will be when to announce the rebate and how big to make it when they are also juggling the hot potato of the state economy.

This, however, is not the only card up their sleeves with respect to the distribution businesses.

They are also working towards a major restructuring of the networks.

They came to government proposing to merge the trio to create two operations – emulating Queensland where state-owned Energex serves on the populous south-east corner and the remaining 97 per cent of the state is the franchise of Ergon Energy.

A recent leak to a newspaper indicated that this mindset has now changed to creating a single state-wide distribution operation, a task looked at briefly in the 1990s at the time of the last major network re-organisation and given away as several bridges too far.

The Labor government at the time, of course, was only too conscious of just how many hassles had been created by a still-earlier effort to shoehorn a multitude of municipal-owned utilities in to three state-run businesses.

Herding cats was easy by comparison.

The buzzing wires say that the first big task in going down this path is to find someone with the standing and the management skills to chair the behemoth and preside over the great coming together.

The venture will be attacked by the unions and the state from the get-go as the first round in an eventual privatisation, which, of course, is what it will be – presenting one of the biggest deals of its kind in Australia.

At least some eyes in the government are being cast across the Tasman Sea, it is claimed, towards the efforts by New Zealand Prime Minister John Key to smooth the sale of his power companies by putting only 49 per cent of the shares on the market.

How clever it will be for O'Farrell and Baird to opt for a Great Big Network Business is debatable.

Certainly Michael Lambert doesn't think it is a good idea.

His advice, in his 627-page audit of state affairs for the new government, is that a merger, even into two entities, would be "unnecessary and potentially counter-productive” if the plan is to proceed with a sale or a long lease of the operations.

Watch this space.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of Powering Australia yearbook, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.