Electricity and Privatisation

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Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion.


Briefing Paper 17/1997 by Stewart Smith

SUMMARY

In the late 1800's electricity became the preferred method for street lighting, and it was not long before local councils across the State became responsible for coordinating electricity supply infrastructure. The first power station in Sydney was completed in 1904 at Pyrmont. By 1949, there were 157 electricity suppliers, either generating or distributing electricity to people across the State (page 2).

Post World War II, the burgeoning economy and lack of new investment during the War led the State government to form the Electricity Commission under the Electricity Commission Act 1950. The Commission acquired power stations and distribution networks, and gained centralised control over new investment in generation and the interconnection of distribution networks (page 4).

The centralised, monopolistic electricity supply industry performed its function with little scrutiny until the early 1990's. In 1991 the Industry Commission estimated that the reform of the electricity supply industry could result in national output expanding by $2.2 billion annual (page 5).

Individual State governments and the Council of Australian Governments began the process of reform of the industry. State grids were connected to form a national grid, which allowed the commencement of a national electricity market. The reforms were given a boost with the release of the Hilmer Report on National Competition in 1993 (page 8).

In 1995 the ALP State Government enacted the Electricity Supply Act, the Energy Services Corporatisations Act and the Sustainable Energy Development Act (page 11). These Acts enabled the introduction of a competitive wholesale and retail electricity market, corporatised the power stations and distributors, and provided assistance in the market place to reduce greenhouse gas emissions. Generators were broken into three competing firms, whilst the distributors were amalgamated into six State owned companies.

In May 1997, the NSW Government introduced legislation to create the national electricity market, which is expected to commence fully in March 1998. Proposals to corporatise the Snowy Mountains Hydro-electric Authority did not proceed in Parliament (page 14). In May 1997 the Treasurer released proposals to privatise the electricity supply industry (page 14). In response to criticism about the privatisation plan, the government commissioned an inquiry chaired by Mr Bob Hogg. The majority view of the inquiry was to privatise the industry, with conditions (page 51). A dissenting minority view was also presented, arguing that the privatisation of the industry was not in the public interest (page 51).

The paper briefly explains some basic economic arguments on the reform of monopolies and utilities (page 20). The international experience of electricity supply industry privatisation is reviewed. It is noted that many countries across the world are in the process of privatising their electricity assets. Many power utilities from the United States and the United Kingdom have expressed special interest in acquiring electricity assets in Australia (page 24). Detailed case studies of the privatisation of the electricity industry in the United Kingdom (pages 25 - 31) and New Zealand (pagese 32 - 37) are presented.

The electricity industry in all States across Australai is undergoing reform, whilst the Victorian government has privatised sections of their electricity industry (under 37). Some potential problems of environmental protection in a national electricity market are explored (from page 44.)

Arguments for and against privatising the electricity supply industry are canvassed. Arguments for privatisation rest on teh premise that the private sector can manage a firm more efficiently than can the public sector; the government is exposed to risk if it maintains the industry in pubic ownership in a competitive market; and that the government can pay off State debt with sale proceeds and use excess for the rejuvenation of public infrastructure (page 46). Opponents to privatisation argue that the public sector is an integral component of the economy, and can compete just as efficiently as the private sector. Public ownership of utilities is important to maintain regulatory control and achieve goals of social equality and economic development (page 48).

A summary of the Hogg report is presented (page 51).