Time to give up the public power game

The use of incentive-based regulation when it comes to running electricity networks is strengthened, rather than diminished, by privatisation. The rationale for government ownership no longer holds up.

The case for completing privatisation of the east coast electricity industry is relatively easily made – as Alan Kohler has done.

The big push for privatisation is required north of the Murray where the New South Wales government owns the four networks businesses and is seeking to sell generation, and in Queensland where the government owns two distribution businesses, the high-voltage delivery system and some 7,500 MW of generation capacity.

Even in these straitened times, the two governments could hope to obtain between $50 billion and $60 billion for these assets.

The hold-up in New South Wales is simple: Barry O’Farrell squeaked the generation sales through parliament with the help of a Shooters’ Party deal but can’t hope to do the same with the networks.

Does he have the heart to go to the March 2015 state election seeking a mandate for these sales – and can he achieve a poll outcome that gives him the numbers in the upper house?

Campbell Newman doesn’t have to worry about an upper house – it was abolished in Queensland in 1922.

Could we persuade O’Farrell down this road? I wonder how many New South Welsh think we need two parliamentary houses?

That’s another story – the point at issue, pushed by Kohler, is why do we need government ownership of power supply?

There is an argument (as weak as water) against the proposition in the 57 submissions the Productivity Commission is now viewing in its review of networks – a report due out in April.

(The draft report provided the peg for Julia Gillard to make her $250 power price cut promise last month – as I have argued elsewhere, on an erroneous reading of what the commission says.)

The Productivity Commission argues that, while governments have a legitimate role in owning and operating many services in Australia, the rationale for state ownership of electricity network businesses no longer holds.

It says this reflects the development of sophisticated incentive regulations that function best when the regulated businesses have strong cost-minimising and profit motives.

It adds; “There are strong arguments for privatisation of these businesses.

“There is no evidence that the productivity, reliability, quality or cost performance of private sector electricity network businesses is worse than their public sector equivalents.

“To the contrary, the evidence in Australia and internationally suggests that such private sector enterprises are more efficient.

“It should be emphasised that privatisation is not de-regulation.

“To the contrary, there is a symbiosis between regulation and privatisation. Strong regulation is needed to achieve the private provision of secure, reliable and appropriately priced electricity network services.

“And privatisation strengthens the effectiveness of incentive regulation.”

This has drawn an Australian Services Union riposte in a rambling submission that keeping the businesses in state hands “allows the opportunity for governments to observe social, environmental and other responsibilities,” which it is obvious from its argument includes keeping employment as high as possible.

The ASU case also includes keeping the profits network businesses make in local hands rather giving returns to shareholders in other countries “at the expense of Australian citizens.”

So far as I can see, only GDF Suez Energy Australia (which owns Hazelwood and Loy Yang B power stations in Victoria plus other assets in South Australia and Western Australia) has taken up the cudgels for the private sector in the submissions.

The company makes the point that, where governments retain ownership, they are held publicly accountable for electricity cost and service level outcomes – and this leads them to take short-term decisions for political purposes.

In addition, it says, commercial disciplines, with shareholders breathing down the necks of boards and managers, result in lower costs for consumers – to which the obvious retort is that it does in monopoly businesses when, as the PC says, the regulation is adequate to ensure the customer interests are paramount.

Which brings us round in a circle to one of the key spins of Julia Gillard: there needs to be a stronger consumer advocacy role in the management of electricity regulation.

The issue here is not whether this should happen but how to ensure that it is done in a sensible form that doesn’t end up creating a whole new problem.

Sydney’s Total Environment Centre wants the current reform process to produce a body it calls Energy Consumers Australia to provide householders and small businesses with the formal means of intervening in regulatory oversight of outlays and charges and a budget of $2.5 million a year.

Overall, the real problem is that the whole electricity reform process is trundling along in a piecemeal way, with lots of political ducking and weaving, rather than being driven by the bold, imaginative thinking of the 1990s, which was led by the Hawke/Keating government, supported by the likes of Jeff Kennett, Nick Greiner, John Fahey and Wayne Goss, and delivered us the current east coast competitive market, flawed but directionally right.

Unfortunately the states, and Queensland and New South Wales in particular, ran out of steam a decade ago, not coincidentally because the trade union movement had them by the neck, and we are left today with what Robert Gottliebsen calls an “energy morass” (Painful extraction from an energy morass, January 9).

As Kohler rightly asks, how much leadership can we expect from Newman and O’Farrell? To which one can add the blindingly obvious thought that Gillard is no Paul Keating.

The two big problems are time and impact.

How far down this decade do we need to stumble before the path out of the swamp is found and followed?

And (literally) what price do we have to pay for more years of mumbling and stumbling?

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.

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