Ten years ago this month, Kansas City-based Utilicorp headed a consortium that bought Victorian electricity distributor and retailer United Energy for $1.55 billion from the Kennett government. At the time, few had any real idea of what the assets were worth and there was speculation that the sale would bring in as little as $800 million.
The sale of United Energy was the opening chapter of an energy privatisation process that was completed by 1999. The process was to net the Victorian taxpayer $28 billion for the assets formerly owned by the Electricity Commission and Gas and Fuel.
Back in 1995 there were many voices raging against privatisation. A socialistic anti-business mentality remained strong. Added to this was the self-interest of the power industry unions anxious to avoid the ending of wasteful management practices that all this entailed for the excessive staffing levels built up over the years of political control of the energy supply businesses. Michael Rizzo, Victorian assistant secretary of the Australian Services Union (ASU), declared that the United Energy sale was bad economics and would lead to a deterioration in the quality of supply. He said: "We have always opposed privatisation, not just out of concern for our members' jobs but because our members are consumers as well".
One factor muting the opposition to privatisation was Victoria's financial crisis. This had already propelled the Cain/ Kirner governments to commence a serious labour-shedding program for the industry. It was to be the midwife of the Kennett government's 1992 election that brought an acceleration of public-sector reform.
For Kennett and his treasurer, Alan Stockdale, the sell-off of the assets was not only to raise money for a financially strained economy. It was also intended to introduce an automatic pilot behind the constant search for improved efficiency. This was to be accomplished first by ensuring profit-oriented owners were in charge of the businesses and secondly by setting up an industry structure that kept competitive pressure on energy suppliers.
None of the businesses sold by the Kennett government has moved into the 21st century without a major ownership change. The original dozen or so assets formerly housed in the Electricity Commission have been re-parcelled and on-sold, often on multiple occasions.
Sometimes the motivation for this was pressure on the new owners' other global assets, sometimes it was to eke out additional efficiencies, and sometimes a new owner came along with a different business plan. In the process, Australian-owned businesses such as AGL, Alinta and Origin have emerged as major forces. Similarly, the local arms of the mainly British, Singaporean and Hong Kong-owned businesses, many of which are under Australian management, have assumed increasing influence within their parent companies.
Though only South Australia has, to date, followed Victoria's lead in comprehensive privatisation, the market structure pioneered by Victoria was largely adopted by other states and evolved into a national market for electricity. That market structure involves breaking up the suppliers into competing businesses to ensure the disciplines of commercial rivalry are in place wherever possible. Where natural monopoly is unavoidable, the structure involves putting in place a regulator independent of the government itself.
The outcome of the privatisation of the electricity and gas industries has been a triumph of public policy in every sense. It allowed Victoria to become substantially debt free and created businesses that stand tall among their peers elsewhere in the world. More important for consumers, competition and improved efficiency have meant lower prices and a more reliable supply of electricity.
The Essential Services Commission (ESC) monitors electricity businesses' reliability performance.
It has sticks and carrots to supplement the commercial motivations the businesses have in maintaining a favourable image among its users.
Since 1993-94, minutes-off-supply per customer in Victoria have halved to 132. Over the same period, all other states have shown deteriorations in this measure of service. According to the latest data, NSW electricity customers supplied by the government-owned system (which used to outperform Victoria) experienced an average 219 minutes-off-supply.
The ESC has reported other achievements. Among these was that last year only 0.14 per cent of appointments were not met on time (less than 15 minutes late) and only 0.3 per cent of customers experienced a level of unreliability that entailed them being off-supply for more than 12 hours.
Improvements to Australia's electricity supply industry were under way before the Victorian privatisation program, and have continued in the years since it was complete.
However, private ownership in Victoria has given the electricity supply industry in this state a greater flexibility to adjust to changed circumstances and in many cases -- perhaps aided by the ESC's sticks and carrots -- greater customer orientation.
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