The Post: Ideas for the electricity market the Government didn’t come up with

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Early in my career, I received an email from an inattentive – or possibly just confused – fan delighted by all this anti-inequality work being carried out “by Max Bradford”.

The unintended joke, which older readers will have got straightaway, is that that Max was not an egalitarian commentator but a 1990s politician perfectly happy to see inequality rise, as long as it served his Cabinet’s attempts to remake government in the image of the market.

Bradford was, in particular, responsible for the market-based reforms that gave us the current electricity system. And it is this system that is now dominating headlines – “the only game in town”, as one insider put it to me last week.

Power prices are forcing regular factory closures, while over 350,000 households endure energy poverty. Next year’s election will take place after what could be another politically brutal winter, and the government knows it.

Not that its response this week suggested as much. Torn between Act’s Bradford-esque desire to fully privatise electricity supply, and New Zealand First’s pro-nationalisation rhetoric, Energy Minister Simon Watts delivered a grab-bag of incoherent tweaks. Commentators were unimpressed: even the generally pro-business NBR said he had “failed to deliver a solution”.

Apart from a vague plan for extremely expensive imported gas, and even-vaguer noises about toughening regulation, Watts’s main promise was to give the state-owned gentailers more capital if they want to boost generation. Yet these are organisations loaded with cash.

As the Council of Trade Unions (CTU) pointed out earlier this week, the gentailers have paid shareholders over $13 billion in dividends since they were part-privatised 12 years ago. That is at least twice their capital investment in the same period, the CTU estimates. The gentailers could have built more capacity, but have chosen otherwise.

Critics have described Watts’ proposal as, in essence, a feeble plea for profit-oriented firms to go against their basic nature and disturb a system that suits them well. And it is certainly true that, in recent decades, the world has learned just how hard it is to get private firms to pursue the public good – via the fabled “invisible hand” – in areas where there is no natural market.

Evidence review after evidence review has found no overall positive effect from privatising prisons, schools, buses and the like. In Britain, Margaret Thatcher’s carelessly privatised, debt-laden and heavily polluting water companies are among the great policy disasters of our age, right up there with America’s grotesquely privatised health system.

Unsurprisingly, then, global efforts to challenge the status quo are gradually reviving. The Frontier report into our electricity sector, which the Government commissioned but then effectively buried this week, may have recommended full privatisation. But it also displayed a striking clarity about the sector’s problems, proposing other, more useful interventions that could have seriously curbed the gentailers’ excess profits.

In the UK, meanwhile, the Labour government has established Great British Energy, a state-owned company that is spending billions of pounds on offshore wind and other renewable schemes. Polling shows it has clear public support.

In Australia, Victoria’s Labor party has just revived the State Electricity Commission, privatised in the 1990s but now rejuvenated with A$1b in funding. Again, it’s pursuing renewable energy; again, it’s an electorally successful proposition.

Back home, the CTU this week made an intriguing proposal, urging politicians to use the dividends from the state’s remaining 51% of the gentailers to gradually repurchase the privatised 49%. Wholly state-owned gentailers could then be more easily directed to bring on new supply.

Given the failures of part-privatisation, it’s an idea worth contemplating. But even when fully state-owned, the gentailers were hardly model enterprises.

Some would harken back still further, to the pre-1990s Electricity Corporation of New Zealand, which valorised engineers over corporate-style managers. But even conventional state control can have its downsides. Engineers may over-build, and ministers may manipulate state-owned enterprises for political ends.

One possible solution is to run such enterprises in more deeply democratic ways. A model here is Paris’s water supply, privatised – weirdly for the French – in the 1980s but renationalised in 2010, after independent audits found water charges were wildly excessive and investment levels disappointing.

The new public operator, Eau de Paris, saved €35 million through increased efficiency in its first year alone, allowing it to cut charges by 8%. Nine in 10 Parisians are satisfied with its service.

Central to this success is citizen oversight. A City Water Observatory– with members drawn from NGOs, unions, universities and elsewhere – vigorously scrutinises Eau de Paris from outside. The Eau de Paris governing body, meanwhile, comprises not just city councillors but also staff delegates, water and sanitation experts, and representatives of both residents and environmental groups.

This broadly democratic make-up helps balance the equally broad range of goals a public body must serve, while the accountability mechanisms ensure transparency and efficiency. Let us hope that our own election campaign next year will canvass similar ideas.