Op-ed: in Canberra, three decisions in 25 years

By Michael Easson

Tuesday July 7, 2020

Michael Easson

In 25 years, as an independent director of various ACT government corporations in energy, water, and urban planning, I participated in decisions that continue to shape the future of Canberra.

This note highlights three decisions and reflects on the rationale for the directions chosen, the dilemmas faced before deciding on a course of action, and the processes of disparate people reaching their conclusions.

What is sketched here cannot be comprehensive. But hopefully enough is said to be useful, to provide insight about those involved in vexed decision-making.

The three examples are:

First, the decision to half privatise energy distribution and retail through a 50/50 joint venture between a government corporation and the private sector.

Second, the building of an enlarged Cotter Dam as part of a suite of initiatives to provide enhanced water security for the ACT.

Third, to consciously revitalise the ‘spirit of the Burley Griffins’ on urban planning outcomes in Canberra.

In all three cases, it is valuable to consider the problem to solve; what tentative solution was considered, including various options; what were the major  complications; why a particular solution was chosen; and, whether the outcome matched the objective chosen.

In 1995, the statutory authority ACT Energy and Water Corporation (ACTEW) was formed and consolidated energy and water operations in the ACT under a single body, with a new managing director, and an independent board reporting to the chief minister. By 2000, fresh strategies in water and energy were considered and pursued.

ACT Energy Partnerships

With energy distribution and sale, there were distinct challenges: first, to deliver affordable, competitive, safe, and efficient (on cost and sustainable terms) services to ACT customers; and, second, to ensure the value of ACT assets were safeguarded, enhanced if possible, and not stranded.

Competition reform across governments, their utilities, and regulation more generally – a consequence of the National Competition Policy reforms (recommended by an independent committee commissioned by the federal government chaired by Professor Fred Hilmer, in 1993; reinforced by a Productivity Commission review of potential outcomes and benefits, which reported in 1995) – created an uncertain and undoubtedly more challenging environment.

In the late 1990s the ACT government explored re-organisation and business options in the face of competition and concerns about energy trading risk.

The government worried that an insular, engineer-led, hitherto protected outfit would stagnate in the new environment.  More robust comparisons between utilities would be made about efficiency, cost performance, environmental sustainability, and safety.  Decision-making in the context of uncertainty about the market led the ACT Treasury to fear that ACTEW might underperform.  The Sydney-based energy company AGL (previously known as the Australian Gas Light company) had a near monopoly of gas reticulation in the territory and was cross promoting electricity and gas packages to consumers.

“Does government need to be both regulator and asset owner?” was a question asked by state and territory governments across political persuasions.  This question became particularly acute with the establishment of a national electricity market (NEM) scheduled to operate from May 1998, enabling the transmission and sale of electricity between states (New South Wales, Victoria, South Australia, and the Australian Capital Territory).

With Victoria securing in 1995-98 handsome prices from local and offshore owners for their energy assets, temptation beckoned.  A proposal to privatise ACTEW, however, could not obtain a majority in the ACT Legislative Assembly (due to a combination of the then ALP opposition and crossbench MLAs.)

With the ACTEW Board, the government then pursued a link with a larger energy utility.  The key objectives were to: establish a merged entity in which the ACT government would hold at least a 50% interest; ensure that any new entity would cover both gas and electricity; create close links with a large operator in the Australian energy market that could buy electricity and gas at highly competitive rates and thereby ameliorate the market risk exposure concerns of the ACT government; retain a strong vibrant local employment base; and, allow pre-tax profit distributions to the ACT government’s interest in a new structure.

The ACTEW Board recommended that a partnership with AGL be thoroughly investigated.  Long story short is that ActewAGL was formed on 3 October 2000 as a 50/50 partnership between AGL and ACTEW.

On the ACTEW side, Jim Service (ACTEW Chair, 1995-2008; ActewAGL Chair, 2000-2008), and John Mackay (ACTEW CEO, 1998-2000; ActewAGL CEO, 2000-2008; ActewAGL Chair, 2008-13) drove consideration of the arrangements with AGL.

Separate partnership agreements covered energy distribution and retail.

As ACTEW did not operate a gas reticulation or distribution business and AGL was absent in energy distribution, it was decided that the new JV would merge the two.  Upon formation, ACTEW transferred its electricity business and AGL transferred its gas business (in the ACT and the-then Yarrowlumla shire, which surrounded the ACT and included Queanbeyan) to ActewAGL.  AGL contributed a $119.0m “equalisation payment” to the ACT government via ACTEW and additionally, prior to merger, a $300m capital repayment was made by ACTEW to the government.

The retail partnership managed the supply of wholesale electricity and gas by AGL, under competitive pricing arrangements agreed to by ACTEW and as reviewed and monitored by independent regulators.  Additionally, AGL took over energy trading operations including wholesale risk.

ActewAGL ran as a single business (with a single CEO and CFO for both partnerships) through a Partnerships Board, with a rotating chair, and with all decisions of the Board unanimous.  In 2006, Jemena acquired AGL’s interest in distribution, with AGL retaining its share of the retail partnership.  In twenty years, despite numerous and new challenges, the entity endures relatively intact.

Influencing the structure and the model of two partnerships was concern that regulatory requirements might evolve to require the separation of the infrastructure business from the retail business.  With the regulators’ subsequent introduction of ring-fencing requirements in 2006, the model was validated.

For ACTEW and the ACT government, the partnerships enabled both private and public sector expertise to be applied to the management and improved efficiency of energy assets.  Water assets continued to be owned by ACTEW, though largely managed by ActewAGL (until 2012).

In energy, several important tests – churn, confidence, and economics, vindicated the outcome.  Churn from residential consumers is the lowest in any capital city (less than 5% in any year since ActewAGL’s formation).  Surveys show that ActewAGL is the most trusted brand in its market in Australia.

In 2000, the electricity business then 100% owned by ACTEW returned a profit of $48 million.  In 2012, with ACTEW’s 50% share in the joint venture, ActewAGL returned $81 million to ACTEW.  Although margins have fallen since, in every year of the JV, allowing for inflation, the profit from the 50% ACTEW-owned of ActewAGL easily outperformed the previous 100% ownership of electricity assets.

Water security

The second major challenge was the issue of water security and the need for focused, active management in addressing major challenges.  This led to ActewAGL agreeing to transfer in 2012 most of the management of water assets to ACTEW Water (renamed Icon Water in 2015.)

Between 1997 and 2009 south-eastern Australia experienced a significant drought which resulted in severe water restrictions in the ACT for nearly eight years (December 2002 to November 2010).  This ‘El Niño effect’ drought resulted in a significant drop in water storage levels in the ACT.  In 2007, various measures aimed at providing water security for the ACT were announced.  These included the enlargement of the Cotter Dam from 4 gigalitres to 78 gigalitres – substantially increasing the ACT’s total water storage capacity; and the construction of the Murrumbidgee to Googong Pipeline.

As there was a dearth of expertise either local or, indeed, across Australia in cost efficiently conceiving of and then project-managing the building of a dam, ACTEW selected an alliance contracting arrangement, the Bulk Water Alliance, to deliver the two projects (and some others.)

The Bulk Water Alliance comprised ACTEW Water and non-owner participants, GHD as the project designer and leader, and constructors Abigroup and John Holland Group.  The Enlarged Cotter Dam project involved constructing a new dam wall, 80 metres high and 240 metres wide, approximately 100 metres downstream from the existing Cotter Dam wall.  Other activities undertaken were the construction of two substantial earth embankment saddle dams adjacent to the main dam; the upgrade of recreational facilities within the Cotter precinct, including Casuarina Sands and Cotter Avenue; construction of a new walking trail and public viewing platform; and, construction of 7 kilometres of artificial fish habitat.  The Murrumbidgee to Googong Pipeline was intended to provide additional capacity and operational flexibility by allowing ACTEW to extract water from the Murrumbidgee river and transfer it to the Googong Dam.  This involved the construction of a pipeline and associated infrastructure to facilitate the transfer of up to 100 megalitres of water per day from the Murrumbidgee River, through a 12-km underground pipeline, to Burra Creek in NSW.  The water would then flow approximately 13 kilometres along Burra Creek into the Googong Dam.

With bushfires and drought in early 2020, the enlarged Cotter Dam was cited as the main reason for the ACT’s water security. This year ACTEW was capable of supplying water for Braidwood in the Southern Tablelands.

In June 2015, the ACT Audit Office reported that the cost of the Enlarged Cotter Dam, $410.5 million, exceeded ACTEW’s final estimated cost of $363.0 million provided in September 2009.  Over-optimistic construction schedules; unforeseeable events, including a 1:100 year flood; a slower than forecast rate for excavating and cleaning up the foundations of the dam in preparation for the placement of the dam wall (a foreseeable risk); slower than anticipated placement of roller compacted concrete in the dam wall (a foreseeable risk); additional work to prepare for, and mitigate, flood events at the site (some were foreseeable, others not), were the main causes of cost overruns and delay.  This compares to median and mean dam cost overruns, expressed as percentage of contracted dam cost, of 49% and 120% in Australia.  (C. Petheram & T.A. McMahon, ‘Dams, Dam Costs and Damnable Cost Overruns’, Journal of Hydrology X, Vol. 3, April 2019.)

In Canberra, Icon Water’s water and sewerage charges to consumers are the second cheapest in any capital city.

City Renewal

The City Renewal Authority (CRA) board was appointed on 1 July 2017.  As a governing board it includes highly experienced members with expertise in urban design, project management, architecture, planning, sustainable development, affordable housing, construction finance, valuation, and community engagement.

The key challenge for the CRA was the lack of a rigorous design framework in the ACT.  The introduction of light-rail to Canberra’s city centre was a catalyst to re-imagining better urban design, as was the implosion of confidence in a previous government agency responsible for city planning.

One of my colleagues on the CRA Board, the architect Ken Maher said mid 2019: “The Griffins’ vision for an urban landscape structure, expressed through a strong geometry derived from the natural topography and landform setting – an amphitheatre defined by surrounding mountains – was a masterstroke.”  The landscape romanticism of Canberra’s design, its respect for tradition and innovation, can be the basis for inspiring change.  Already, New Acton is an outstanding (if not the best) example of urban renewal in Australia.

In three years as Chair, all I could do was lay foundations, including appointing a CEO who understood urban design and to ensure those skills were complemented by a commercial manager.  The Board of high achiever “doers” evolved its own personality, perspective, and learnt to be pushy about desired outcomes.

During 2019, the CRA played a significant role in improving design outcomes across the precinct through our role as a mandatory referral agency providing advice on more than 183 proposals with a combined development value of $2.6 billion; commenced design work for Lonsdale Street, Braddon, and Woolley Street, Dickson, as part of a streetscape works program for both areas; completed design documentation and approvals for Acton Waterfront Stage 2 (the boardwalk) and undertook a comprehensive review of the long-term planning, procurement and development of this project; commenced revitalisation planning for the Sydney and Melbourne Buildings including new legislation; and managed implementation of deeds for the ANU and UNSW sites; curated and staged a range of interesting, exciting and enjoyable events and activities throughout the year including Christmas in the City, Wintervention, linkages to Floriade and Enlighten, Haig Park Pickture Festival, Multi-cultural Festival and Christmas in the City; managed the Haig Park Experiments Project resulting in strong community support for its revitalisation as a key open space; commenced a program of public realm improvements making the precinct more attractive, comfortable and engaging, with new street furniture and enhanced place management; completed Acton Waterfront Stage 1 and opened Henry Rolland Park; built new waste enclosures in the laneways of the Sydney and Melbourne Buildings and arranged a common waste collection service with tenants; and, commenced design and development planning for the Civic, Arts and Cultural precinct to realise the creative potential of this key area.

The CRA prepared place plans developed through extensive consultation for Dickson, Braddon, Haig Park, Garema Place, Acton Waterfront and South-East precincts.  These are the bases for site specific renewal initiatives.

Through the primary instinct of communion with our community, the CRA seeks to convey the quality and force of our experience by fostering a diversity of communities and places surrounding the centre, with Civic transformed by eliminating the dominance of cars over people; engagement and insistence on excellent in and design quality; to ensure buildings are never isolated, but part of the performance of a vibrant society; and, to express and celebrate the culture of an intelligent and inclusive city.

The CRA’a ambition is imaginative action in developing and organising urban life and to demonstrate how to think, plan and act creatively in addressing urban issues.  The foundation is now laid.

Opportunities to make a difference can be compared to storm winds, flinging open the doors of perception, pressing upon the architecture of beliefs with transformative powers.  This note barely records their impact in putting the house in its new order in those instances covering energy, water security, and urban renewal.

As with all projects, decision-making creates new learnings and generates options for extension, retreat, and/or innovation.  In doing so, Boards fulfil a vital role in providing guidance to the executive, leadership to the organisation, and maintaining or restoring confidence with the shareholders in the arrangements and individuals that they put in place to monitor and lead their respective organisations.

The Board is a critical element of the governance framework, as enshrined in legislation and reinforced by external reviews.  A good Board can provide a steadying influence on the organisation, dealing with its statutory responsibilities and attending to the important task of developing options for future strategic direction.

In 25 years, on the relevant Boards, there were no leaks, robust debate was encouraged, and consensus reached.

I enjoyed working with strong characters, such as Kate Brennan, Wendy Caird, Nigel Chamier AM, Michael Costello AO, Christine Covington, Michael Frazer, Dr Alan Hawke AC, Dr John Knox, Carol Lilley, John Mackay AM, Ken Maher AO, Professor Tom Parry AM, Rachel Peck, Mike Sargent AM, Jim Service AO, Gabrielle Trainor AO, to name just some of the more prominent directors.  Each had lifetimes of interesting experiences.

I learnt to listen, to be cautious about ‘optimism bias’, to engage with consultants without contracting out our decision-making responsibilities, to be driven to frustration sometimes by regulatory over-reach, to patiently argue out of corners, persuade and cajole, and to respect all the good souls who work to deliver good outcomes.  It is never easy – a saying I now better understand through the projects I came to be involved with.

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