The people vs electricity privatisation
by John Kaye,Greens NSW MP
In early September, the commitment of former NSW Premier Morris Iemma and his highly volatile Treasurer Michael Costa to selling off the state's electricity industry brought their political careers to a dramatic end. They badly misjudged the emotional depth, intellectual strength and organisational prowess of the opposition to privatisation. The two most senior Labor politicians in the state crashed and burned when their legislation foundered in the NSW Upper House.
The saga of how their plans came unstuck contains valuable lessons that are relevant far beyond the borders of NSW. Like the victory of Your Rights at Work over the Howard government and its repressive industrial relations laws, the success of the NSW campaign to stop the sell-off remains a job half done.
While the leasing and sale of the generators is off the table for the time being, the new Premier Nathan Rees and his Treasurer Eric Roozendaal are still pushing ahead with the sale of the retailers, despite the appalling social and environmental consequences.
In the past three decades Australian politics have rarely witnessed the combination of powerful intellectual arguments, a well-organised grass roots campaign and a courageous push within the Labor party, aligned for long enough to undo the plans of the neo-liberal Right.
In 2008 that is exactly what happened in New South Wales.
The economic case for the sell-off was always weak. It relied heavily on a deeply flawed report of Economics Professor Tony Owen to establish an economic imperative for privatisation. He claimed that the state would run out of baseload generating capacity by about 2013. The price tag was between $7 billion and $8 billion for new large scale power stations designed to run 24 hours a day which would probably burn more coal.
In addition, existing power stations would need up to $4 billion spent on them to improve their “environmental performance” and the retailers would not stay competitive in the national electricity market without an injection of $2 billion to $3 billion. Professor Owen closed the loop on the sell-off argument by asserting that public ownership would deter private investment in new power stations. Privatisation was thus, according to Professor Owen, essential since the state would blow its AAA credit rating if it tried to borrow the $12 billion to $15 billion needed to keep the lights on.
While Premier Iemma and Treasurer Costa joined with the representatives of the corporate world in enthusiastically embracing the report, the union movement, the Greens, progressive members of the ALP, academics like Professors Bob Walker and Sharon Beder and many others were quick to point out the logical and factual errors in the report. Each of the three key propositions of the Iemma government's arguments was fatally flawed.
The state does not need new baseload power stations. It was easy to demonstrate that whatever shortfall in generating capacity might open up in the next decade could easily and cost-effectively be dealt with by demand side energy efficiency measures such as replacing inefficient electric offpeak water heating with solar or high efficiency gas.
“Improving environmental performance” was in fact code for clean coal and carbon capture and storage, technologies which have not yet been demonstrated in commercial operation. Professor Owen was asking the state to hand its generators over the private sector in the hope that they would eventually spend up to $4 billion to implement as yet unproven technologies. The private sector is already investing in baseload generation, despite public ownership of the majority of the rest of the state's electricity system. Privately-owned TruEnergy is building a 400 MW combined-cycle gas turbine plant on the shores of Lake Illawarra, near Wollongong. Loran Energy Products recently announced plans for another 600 MW baseload gas power station to be built near Sutton Forest.
There is a fair amount of economic voodoo in the argument that that state cannot afford to borrow to build power stations. It is at this point that the proponents of privatisation conveniently forget their usual child-like faith in markets. If the state is facing power shortages, then wholesale electricity prices will increase to the point where new capacity will earn revenue that would cover the costs of sustaining the loan for capital to build it as well as return a profit to the investors.
This argument works as well for publicly-owned utilities as it does for the private sector. The state's AAA credit rating would not be affected by borrowing for a self-sustaining investment. Apart from the obvious holes in the Owen report, there were also strong social and environmental reasons for opposing the sell-off.
NSW's coal-fired generators pump out 58 million tonnes of carbon dioxide each year. That's 37% of the state's greenhouse gas emissions that the Iemma government wanted to put into the hands of corporations determined to make more money by selling more energy and doing more damage to the climate.
Selling off the retailers and leasing out the generators would throw away a crucial opportunity to use public ownership to meet this state's international obligations to reduce emissions while stopping blowouts in household energy bills. Privatised retailers will see consumers as cash cows and will never be able to form partnerships in energy savings that will be needed to keep down costs and reduce emissions.
Despite the arguments against the sale, the Iemma government pushed ahead with their plan to sell off the retailers and lease out the generators. Their fear-mongering that the state faced the alternatives of economic ruination and blackouts if they were not successful was ignored by the ALP state conference in May of 2008 that rejected electricity privatisation by an overwhelming vote of 702 to 107.
By this time, a massive public campaign against the selloff was building up. Community and workplace meetings throughout the state, a constant stream of media stories and high profile public statements from Labor state MPs kept the pressure on the government. Opinion polls, talk back radio and strong attendance at community meetings continued to demonstrate a strong opposition to the sell-off. By this time the Greens introduced their No Mandate, No Privatisation Bill into the NSW Upper House. If passed, this legislation would have forced the Iemma government to seek approval of both houses of parliament for their sell-off.
Although the Greens' bill had a limited chance of success in the lower house, two ALP members had indicated their determination to vote for it, ensuring its passage through the Upper House. Treasurer Costa could not stand the idea of a Greens victory, however symbolic, and consequently on 27 February gave an undertaking to not proceed without the consent of both houses of parliament. That proved to be a fateful display of hubris, the significance of which was not clear until six months later.
As a growing number of government MPs pledged to vote against the sell-off in support of their party's platform and conference, the focus shifted to the Coalition. Opposition Leader Barry O'Farrell sat firmly on the fence, with a somewhat meaningless list of five key conditions to support the sale legislation. In reality, National Party MPs – afraid of weakening their already tenuous hold on seats where privatisation was seen as an attack on the reliability and affordability of electricity – were agitating for a “no” vote.
Mr O'Farrell was trying to balance divisions on the issue within his own party and intense public pressure from the business lobby with National Party and community opposition. At the last minute, on the day in late August that parliament was recalled specially to consider the Treasurer's sell-off legislation, the Coalition came out against the sale. Rather than suffering the inevitable defeat, the Iemma government pulled the plug on the debate before the final vote. Shortly after the Upper House adjourned, Premier Morris Iemma and Treasurer announced their (previously non-existent) Plan B: privatisation of the state's three stateowned retailers, without parliamentary approval. This administrative sell-off would be legal but it violated a direct undertaking given to parliament by the Treasurer. Within a highly dramatic week of unprecedented political manoeuvring, the Premier and the Treasurer had both lost their jobs as an inevitable consequence of growing dissatisfaction within the community and the party. However they left behind their Plan B and a supposed budget crisis created by the failure to sell the generators and a consequent threat to the AAA rating.
The campaign to maintain public ownership over the retailers continues. The new leadership team of Premier Nathan Rees and Treasurer Eric Roozendaal appear to be determined to ignore the arguments that public ownership of electricity retailers is an important and valuable mechanism for not only reducing greenhouse gas emissions but also protecting low and middle income households from the impacts of rising unit prices.
It has been an extraordinary time in NSW. Not only has a concerted and well organised campaign by unions, power industry workers, environmentalists, rank-andfile ALP members and Greens succeeded. Not only has the march of market ideology and its key promoters in the business community and the major political parties suffered a substantial set back. Most important of all, the people of NSW have been reminded of the importance of public ownership in controlling their environmental, economic and cultural future.
Source: Australian Options, Issue 55, Summer 2008/09, pp. 14-6.