The Rees Electricity Privatisation Plan

The plan involves:

1. Sale of generation development sites (with "use it or lose it" conditions)

2. Sale of retail arms of Energy Australia, Integral Energy and Country Energy

3. Lease of the trading function to the private sector. Selling electricity will be performed by the private sector.

The three big problems with this plan:

1. It shifts all the cost-risk onto households

2. It leaves the management of change to the discredited free market

3. It does nothing to promote a transition to sustainable energy

The way forward?

"Could you imagine filling up your car with a tank of fuel and then going into the service station to find out what the price is? This is effectively what the government is asking us to accept."

The latest proposal purports to be different, but in reality contains much of Iemma's scheme and leaves the door open to bringing in the rest of the plan by stealth – without requiring enabling legislation.

The new government plan is to privatise the retail sector – Energy Australia, Integral Energy and Country Energy – and lease the right to sell electricity on the wholesale market.

Current power generators would remain in public hands, as would the transmission infrastructure. Development sites – earmarked for future generation needs – would be sold off. Private electricity wholesalers would have the right to build new power plants, effectively privatising the industry over time.

This plan holds the underlying view of the discredited Owen Report that to guarantee the future of the state's energy needs, energy generation and retail must be opened up to private profit.

It does not have any mechanism to cope with future energy needs in a world where climate change is forcing reorganisation of carbon-intensive industries, such as base load electricity generators.

Nothing in this plan will help create a sustainable energy industry. This is left up to the market.

There are no guarantees that privately owned electricity marketers would invest in new power stations, let alone sustainable ones.

Even if they do, the new generators would likely be the cheapest available – based on dirty coal. The future of the electricity industry – and indeed our own future – would be left up to the markets.

While the government claims that retail prices will be capped until 2013, it has decided to review the cap based on the extent of private generation of electricity.

Despite the Owen Report, the future of the state's electricity supply is not in dire circumstances. Owen omitted the crucial fact that potential energy efficiency savings using currently available
technology would rule out the need for new power plants and would allow the phasing out of current coal fired plants.

Under the Rees plan managing electricity demand would go out the window as private retailers and traders sought to maximise demand and through that, maximise profit.

The government is effectively selling the wholesale electricity market to the private sector.

This market is very volatile – a futures trading market on electricity – and when deregulating the electricity retail market, the government is seeking to wash its hands of the cost-risks associated with this market.

The hedge will be to pass on the cost-risk to retailers, who in turn will pass it on to households.

Any private corporation looking to get into this sector is going to need a very big carrot to smoothen the road for them.

One carrot will be the possibility for wholesale distributors to become generators.

There will this be no requirement for the wholesalers to buy their electricity from government owned generators. Indeed, another possible carrot potential wholesalers may demand is to be able to buy from cheaper, privatised generators elsewhere on the national grid.

Electricity, by is very nature, is not a commodity that can be packaged and labelled with the company's logo as other goods and is distributed alongside electricity from other retailer through the same power lines. The only reason for these reforms is to place the system
in private hands run for private profit, rather than any efficiency gains.

Workers in the electricity retail industry have been told that their jobs and conditions will be safe. However, from a government that is looking to massively cut jobs in the public sector, these guarantees are not worth the paper they're printed on. Award workers will face
pressure to accept cuts, whether at the end of the 5 years if not before. AWA workers could find themselves out of a job at the end of their contract.

Any new power stations built by the wholesale corporations would become greenfield sites – open to new employment conditions worked out by the company themselves before they even employ anyone. This alone would place great pressure on the wages and conditions of workers in other plants.

So what does the government get for this? It has been estimated that it will receive $10 billion for the lease of the wholesale rights over 10 years. A further $3 billion is assumed to be the price for the retailers. Total: $13 billion for the next 10 years, with a decreasing amount after that if private corporations generate their own electricity or buy from cheaper sources. The figures used to estimate the sale of the electricity sector were based on seven-year-old
figures and have not been tested in the marketplace. In a time of global warming, a global credit squeeze and carbon trading tax, the amount the government will get will likely be much smaller.

Compare this to the $1.5 billion in income the government gets each year from its state owned generators and retailers. NSW taxpayers will be behind even before the ink is dry on the sale contracts.

The environment will certainly suffer as a result. With wholesalers able to buy from the cheapest available source they will not be interested in investing in renewable energy or bringing online any sustainable industry until the costs are lower.

The consumer will ultimately be the loser. Cost fluctuations – particularly in peak periods – would be passed on to the consumer. Reliability has been shown to suffer under a system of private generation and distribution. In a profit driven system, the price of electricity is likely to jump just to satisfy the private investors.

The package currently stands at the sale of retailers and lease of wholesale trading rights, but it is still possible that these will be a package deal if companies are interested, leading to a privately controlled monopoly.

This proposal is seriously flawed. Even the Owen report couldn't stomach the idea of a stand-alone sale of the retailers, while the privatisation of generator trading has been rejected in 2001 and 2004 because it wouldn't work.

The Rees Privatisation Plan is not the way to go if we are to keep electricity affordable, reliable and sustainable in NSW.

By Liam Mitchell and Phil Doyle