Poles and wires sell off spells bad news for NSW: pensioners association

Originally published by CFA member Combined Pensioners & Superannuants Association

Depending on the outcome of the State Election in March, taxpayers may no longer be the sole owners of NSW’s electricity poles and wires.

The current NSW Government is seeking a mandate from the upcoming election to partially lease the state owned electricity networks. Taxpayers would retain a 51% share while the rest would come under private ownership.

What’s important (and hasn’t been clearly spelled out publicly) is that the NSW Government will not be retaining more than 49% of every electricity business.

For some electricity businesses, the level that’s sold (technically leased off) will be much higher and the majority of the business will be in private hands. Because 100% of Essential Energy (which services rural and regional NSW) will remain in public hands, the other businesses are likely to be majority privately owned.

This means that the NSW Government will be retaining the largest network geographically but the least profitable one with the smallest customer base, while private companies will be able to reap the benefits from those that are the most profitable.

While much of the chatter about this proposal has focussed on how the money generated would be spent, little has been released about how the proposal will affect electricity customers.

Electricity network charges make up 52 per cent of customer bills.  So the impact on customers if this goes ahead cannot be underestimated. The Victorian scenario (where the poles and wires have been privatised) raises some clear red flags. Despite no longer owning the assets, the Victorian Government had to override the insurance of electricity assets after bushfires.

We don’t want to see a situation where the private sector reaps the profits while the NSW taxpayers are left with the burden of risk for adverse events like natural disasters.

The experience of privatisation in NSW also raises alarm bells. The 2011 sale of electricity retailers raised $3.8 billion and the vendors received $380 million for transaction costs. In 2014 the networks outlined more than $200 million lost from ‘loss of synergies’ because the businesses were now competing and no longer government owned (and therefore efficiencies of scale were lost).

The sale of the generators under the previous NSW Government has also cost NSW. The sale allowed the new owner to receive damages when the generators did not achieve ‘contracted available charges’. This is similar to when roads are built under Public Private Partnerships and the patronage of the new roads is less than expected (no surprises, people avoid toll roads when they can): the toll revenue doesn’t meet what was guaranteed and the Government ends up paying for this shortfall.

Importantly CPSA understands that funding for concessions comes from the revenue generated by the poles and wires. Will this be an easy excuse down the track to cut concessions because the revenue is no longer coming into the coffers?