Monday, December 17, 2007

Why I remain a New England New Stater 8 - the electricity asset grab

Note to readers: This post is one in a series using personal examples to illustrate why I continue to support both agitation for New England self-government and self-government itself. Agitation, because its very existence forces forces the Sydney Government to consider New England interests. Self-government, because there are some things that we cannot achieve without this.

The Sydney media has been full of the Sydney Government's plans to privatise the NSW electricity system. I have very mixed feelings on this one. I suspect that it is both inevitable and desirable. But it also rubs raw a past wound.

Back in the nineteen nineties, electricity distribution was controlled by country councils, some of whom also had generation capacity. The Sydney Government put forward a reform program for the electricity sector.

At the time I was running a consulting business out of Armidale. I was also chair of Tourism Armidale. In the first role, I was interested in the electricity sector as a possible consulting marketplace. In the second, I was interested in the New England County Council as a source of tourism funding.

As part of market scoping I looked at the official Government material on the proposed reforms. Essentially these involved folding the distributors into larger corporatised entities. Two justifications were advanced.

The first lay in the national restructuring of the sector, including introduction of competition and the creation of a national electricity marketplace. This, it was argued, required larger entities. Smaller entities could not compete.

The second justification lay in enhanced efficiency. According to the NSW Treasury, the existing country councils were not subject to proper disciplines to earn returns on the assets they held. So consolidation and corporatisation would increase revenues while benefiting consumers.

Now I had problems with these arguments at the time. The New England County Council was owned by local councils and was formed through the acquisition of Council assets. Its growth had been funded by surpluses plus borrowings. The State had controlled and guaranteed those borrowings, but to my knowledge had never contributed a dollar of funding.

As part of its development, the NECC had built its own small hydro power station. This had been funded by its consumers through higher electricity prices, significantly higher than the state average. This investment had reached pay-back time. The NECC was quite profitable, generating funds for local projects, while its electricity prices were some of the cheapest in NSW.

Local concerns across NSW about the plans, about the Sydney Government's grab for assets, were ignored. So what happened?

The first thing that the Sydney Government did was to increase borrowing against the assets, thus generating cash for its own purposes. The second thing was to strip money out through dividends, creating more cash for its own purposes.

In the drive for efficiency, many jobs were cut, in cases such as linemen over cut, creating later shortages that impeded efficiency. There was also underinvestment.

Did consumers benefit? This is hard work out accurately. Certainly bigger industrial users did.

Did the original local owners of the assets benefit? Almost certainly not in the case of NECC. The area lost higher level jobs, plus access to the surplus that had been available to fund local activities. I also suspect that local electricity prices have increased more than the state average simply because they were low to begin with.

Would self-government have prevented this asset grab? Perhaps not, because the Sydney Government's approach was in part part of a broader trend in public administration. But we would have had a much higher certainty of local benefit since funds would have been spent within New England, not sucked away to help fund the inefficiencies of the broader NSW system.

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