Kiwi Experience Corporatisation and Privatisation a country with abundant energy resources stumbles from crisis to crisis. The worst of both worlds Price rises, job losses and a five week blackout. Prepared by ETU December 2012 Kiwi experience corporatisation and privatisation Dec 20121

THE EARLY DAYS CORPORATISATION Electricity generation and transmission Government department, the Ministry of Energy. This Ministry was also responsible for policy advice and regulatory functions In 1985 local distribution and supply were the responsibility of sixty-one electricity supply authorities (ESAs) 1987 ECNZ was set up as a company under the State-Owned Enterprises (SOE) Act to own and operate the generation and transmission assets of the Ministry of Energy. April 1988: ECNZ organised its activities so that Transpower was set up to run the transmission network as a subsidiary of ECNZ, which became solely a generator. September 1989: Task Force recommendations The Task Force's key recommendations were: Separate ownership of generation and transmission Further study of limited generation break-up and creation of a wholesale market (subject to this, ECNZ to be privatised) Transmission to be owned by a club of generators and distributors ESAs to be corporatised and privatised Removal of statutory franchise areas and obligation to supply Development of a light-handed regulatory regime Kiwi experience corporatisation and privatisation Dec 20122

A BIT OF HISTORY 1994 – 1998 CORPORATE NEGLECT Profit before people (Privatisation and Corporatisation) Job losses Sell -offs and restructures Dodgy management structures and huge director payments. (Wayne Gilbert). Maintenance failures Ideological reform Rising residential prices / Kiwi experience corporatisation and privatisation Dec 20123

BLACKOUTS, SECRECY AND CONSTANT REFORM. Feb 1998 Downtown Auckland plunged into darkness the blackouts lasted for more than FIVE weeks and up TWO Months in some areas. Poor maintenance blamed for outage. The influence of Wayne Gilbert (Mercury Energy Boss) on $500,000 per year in 1994, architect of the SEQEB dispute and the privatisation of Victoria’s electricity industry. Massive job losses – Mercury Energy itself halved its workforce from 1100 to less than 600. Aussie cable Jointers flown in to NZ due to lack of skilled workers. Privatised Mercury Energy forced to pay $128m in compensation. Contact Energy privatised in 1999 A further blackout occurred in Picture courtesy of Kiwi experience corporatisation and privatisation Dec 20124

Prices on the rise for residential users Despite all the so called reform the cost of electricity has continued to rise for Residential users while Commercial users have seen a substantial drop and industry has seen a moderate reduction over time, following the full privatisation of Contact Energy in late 1999 prices have risen from 17.5 – 27.5c Residential 12c/kwh – 27.5c/Kwh (1974 – 2011) Commercial 26c/Kwh -17c/Kwh ( ) Industrial 13c/kwh – 9.5c/Kwh ( ) National 17.5c/Kwh – 17.5c/Kwh ( ) Kiwi experience corporatisation and privatisation Dec 20125

Never again – 250,000 sign up to Keep our assets Kiwi experience corporatisation and privatisation Dec 20126

National PM John Key wants to sell 49% share in the remaining three generators So, what would happen if nearly half of the electricity companies were sold to private, often overseas, buyers? They would demand higher profits. The boards of companies would be legally required to act in their interests – it doesn’t matter if 51% remains in government ownership, the private shareholders rights to a higher profit would have to be respected. To make higher profits, they would charge higher electricity prices. New Zealand has some of the most affordable electricity in the world because the publicly-owned companies hold the price down. If they were privatised, that anchor would disappear and prices would skyrocket. Kiwi experience corporatisation and privatisation Dec 20127

Experience for workers Job security – massive job losses, impact on families, communities and wages. Contractors – use of and impact on Union strength and ability to bargain. Reduced apprenticeships and traineeships. Maintenance – blackouts and outages are harder to manage as skills shortages grow. The state of the NZ Electricity Industry now. ◦ Wages – up to 40% lower than Queensland ◦ Opportunities – limited. ◦ Job security – continually under threat due to contractors ◦ Reliability – a constant issue, blackouts on the increase. ◦ Cost – continually rising for residential consumers. ◦ Lessons for Australia – Don’t do it. Kiwi experience corporatisation and privatisation Dec 20128

Conclusion PRIVATISE PUBLIC ELECTRICITY ASSETS? Kiwi experience corporatisation and privatisation Dec 20129