Who wins when states privatise electricity?

By Cameron O'Reilly

Monday May 18, 2015

In two state elections in 2015, those of Queensland and New South Wales, the privatisation of electricity networks has been front and centre in the election campaign. The outcomes differed, but in both cases state Labor parties took a very public stand against privatisation. Some have even claimed that Queensland Labor’s unexpected victory resulted from their clear commitment to ongoing public ownership of electricity networks.

Fact or fallacy, there is no doubt that public opinion was on Labor’s side on the issue, with the same polls which predicted the victory of the Coalition in NSW, also showing public disapproval of their signature electricity privatisation policy. The NSW sales will almost certainly go ahead, but thanks to the compromises the Coalition made pre-election, the regional electricity networks will remain in public hands — absent a change of heart from the National Party — for the long term.

All of this is in spite of clear evidence that the private electricity networks of Victoria and South Australia are more efficient and have contributed less to electricity price rises, than their publicly owned counterparts in NSW and Queensland. Electricity in the privatised states is just as reliable and is regulated in the same way it is in the publicly owned states, with the monopoly networks subject to five year determinations by the Australian Energy Regulator.

It seems that no matter what the evidence, the public has a strong attachment to the notion that an essential service like electricity networks should remain owned by “us”. That doesn’t mean it is right. In these poll driven times, it is to Mike Baird’s credit that he was prepared to use his personal appeal to argue for an initiative that lacked public support.

Baird’s government achieved victory at a time when electricity prices have been a very sensitive issue, with 60-80% increases in the five years from 2009 to 2014. The very networks the NSW government was proposing to sell, were a major cause of those rises, but as a result of the current wave of network decisions by the AER, they are likely to be the major factor behind flat prices in the coming five years. This should provide a nice platform for the NSW Coalition’s re-election campaign in 2019.

Oversupplied generation markets, a trimmed back renewable energy target, less generous terms for rooftop solar and the wariness of both sides to countenances a carbon price of Gillard like proportions, will also ensure a benign electricity price outlook in coming years.

The AER’s tough stance may detract some value from the network assets, but absent competition from Queensland sales, bidding tension will ensure a good return for NSW taxpayers. The management of Networks NSW has claimed that the AER’s stance will cost thousands of jobs, but Baird will be able to transfer this problem to the private sector, unlike the Queensland government. The latter’s “no-forced” redundancy policy will collide with the AER’s proposed cut to the state’s network expenditure plans and most likely, also cut the dividends to the state Treasury from the electricity assets at the worst possible time.

In the end, whether Queensland Labor’s asset sale campaign won them office, it will certainly make it harder to be in office. Moreover whether it helped NSW Labor to win back seats against the popular Baird government, it won’t win them office next time when electricity prices will be less of an issue. This is to say nothing about the long term challenges that electricity networks face from the spread of distributed generation and battery storage.

It may seem counter-intuitive, given how it helped their Queensland and NSW campaigns in 2015, but the list of potential beneficiaries of electricity privatisation should include the Labor Party. Since Victoria privatised its electricity industry in the mid 1990’s, Victorian Labor has been in power for all but one term. Since South Australia privatised its industry, the Labor Party in that state has been in power continuously.

Of course there are other reasons for this, but once Coalition initiated privatisations removed Victorian and South Australian Labor from the responsibility as an electricity sector employer, an industry whose work force is dominated by ALP affiliated unions, they could simply get on with the job of ensuring the service was delivered and appropriately regulated. Meanwhile the last NSW Labor government tore itself apart over electricity privatisation proposals that were ultimately blocked by the unions.

Labor’s governance model, which ensures its conference floor is always dominated by unions with a vested interest in keeping public ownership of utilities, has always presented a problem for its consideration of issues like the privatisation of electricity, or in earlier times, Telstra. In these industries workplace inefficiencies could be hidden and recovered through monopoly charges. In the broader public service the governance model has been less of an issue, as the unions have either not affiliated with the ALP, or in the case of nurses or fire fighters for instance, any ALP Government profligacy will ultimately collide with the need to manage a budget and secure re-election.

If it reflects upon recent history, NSW Labor may see Baird’s victory as a blessing. Already the new leader, Luke Foley, has shown good instincts by backing the AER for reducing prices over the howls of objections to its decision from the unions. In doing so, he may find a price on his own head.

Such a reaction would be unwise. If Labor wants to succeed and enact sensible energy policy the sooner it thinks about what is best for the broader community over what is best for its internal stakeholders, the sooner it will be on the right path. The “comrades” in Victoria and South Australia can show them the way.

Read more at The Mandarin: Mark Birrell: reforming infrastructure to ‘right reasons at the right time’

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