Dave Witherow: More Power To Somebody’s Elbow

Years ago – further back than most of us can remember – electricity in New Zealand was produced by power-stations designed and built by engineers employed by agencies of the government, national and local.

This arrangement, which lasted for about a century, seemed to work tolerably well. Power, distributed all over the country, was affordable, and apart from the odd dry year, generally reliable.

The demand for electricity was increasing rapidly back then, but the engineers quietly got on with it, building more power-stations, mainly hydro, which provided about three-quarters of our total supply. And with a low population and an abundance of untapped resources there was little reason to tinker with the status quo.

But times changed, fashions shifted, and it came to be believed that nothing provided by government could ever be truly lean and mean and value for money. Private enterprise was bound to do better.

There were two main problems, it was claimed. The existing system, being essentially a monopoly, had never been exposed to the rigours of the market. And it was run by a corps of engineers who, obviously, were the least-qualified people to be left in charge of such a huge nationwide business. They might have built the actual structures – the dams, power-stations, supply-lines, and so forth – but what did they know about how to manage them? It made no sense. It left no room for creative thinking, for marketing strategies, entrepreneurial flair, and, and, most of all, it lacked that most essential factor - the vital spur of competition.

By the mid-nineteen eighties the government had been convinced that change was necessary. Panels of experts were convened, including from overseas, and finally a comprehensive plan was produced.

The single market would be dismantled, but the government, aware, perhaps, of possible public resistance, decided to introduce the new regime in several stages over about ten years between 1992 and the early 2000’s. The old monolith was gradually taken apart and partially privatised, and in 1997 the distribution and production arms were separated. Cheap electricity, we were assured, was on its way.

This, of course, didn’t happen. The more reforms that were introduced, the more the price of power went up. People grumbled. But, as usual, political promises were soon forgotten, and were eclipsed altogether by 1999, when National’s John Luxton advised that the objectives of the reforms had been misunderstood, and that: “householders were never promised lower prices”.

The government pushed on, and the market eventually became dominated by four big players, delivering substantial dividends to their new shareholders, domestic and foreign. Prices, meanwhile, kept increasing – along with public awareness that this was a long way from what was originally promised. So in 2003 the government set up an Electricity Commission to re-regulate the now de-regulated industry.

The Commission, inevitably, achieved little or nothing, apart from further free lunches at public expense.

The program of reform, so-called, never had any chance of providing cheaper power. It was, as many critics pointed out, designed to fail. Here, for example, is Dr Sharon Beder, writing in the ODT in 2003. “The track record of electricity privatisation and deregulation around the world indicates it is a confidence trick, undertaken to swindle the public out of rightful control of an essential service – a trick conceived and perpetrated by vested interests who seek to gain from private control”.

Dr Beder, you might argue, is too cynical. But what other motive could these vested interests possibly have had? Did multinational corporations really think they could maintain the same level of service to New Zealanders while paying huge salaries to executives, servicing loans, distributing dividends, funding advertising, and making big profits as well?

“I don’t think so, says Dr Beder. “I think it is much more likely that multinational owners had little interest in the welfare of local citizens. Once they owned an essential service they could charge what they wanted”.

They did charge what they wanted, but the service, year by year, became not only more expensive but less reliable. The lights go out regularly – twice last week in my part of Southland, and people, fed up, are buying petrol generators.

The reformed electricity system, compared with the old one, isn’t delivering. But it’s an endless bonanza for its new owners, who are still operating a near-monopoly, despite the pretence that we can pick and choose. We all need power, and with no genuine alternatives it seems we’re trapped.

But maybe not. The market looks rigged, but free enterprise is endlessly inventive, and Mr Keith Turner, former CEO of Meridian Energy - who played a significant role in the original shake-up - has come up with a new proposal – a possible way out of our current impasse.

The blackouts and endlessly rising power bills, he says, are not really the fault of the people now running the system. Not at all. The big operators, legally and morally, are entirely blameless. They have no options. They’re legally obliged to make as much profit as they can, which, unfortunately, is a serious disincentive to providing the back-up capacity for coping with dry years and empty dams – which now seems to happen all the time. The problem itself is no mystery: we need to build new power-stations. But that would require a great deal of money – money that at present fattens profits and keeps shareholders happy, and would be unavailable if used for expensive construction projects. Dry years, in fact, are good for business. They drive up the spot-price of power, sometimes astronomically – yielding mighty windfalls of extra cash. It would be irresponsible, indeed, from a commercial perspective, practically criminal, to divert money into new power-stations.

The ideal solution, says Mr Turner, is to raise fresh capital from sources outside the existing cartel. This, he says would demonstrate the free market at its best – using the legitimate desire for profit to resolve the problems arising from the desire for profit. It might work, Mr Turner thinks, because there is huge foreign interest in the electricity business. Multinational corporations - given suitable assurances of healthy returns - could be financing new power-stations in no time at all. Everything, of course, would depend on long-term guarantees against any future downturn in the market. And since banks wouldn’t touch this in the current financial climate, the best alternative would be the New Zealand government.

Mr Turner’s panacea, in other words, is an invitation to another round of exploitation - a reiteration of the old agenda that allowed profit-seeking investors to progressively hijack the power-infrastructure we built over decades and collectively owned. The free market won: we lost. And now we are advised that the best way forward is more of the same.

Nice one, Mr Turner.

Dave Witherow, who emigrated to New Zealand from Northern Ireland in 1971, is a columnist, author, script writer, and former scientist for Fish and Game.