Motions

Electricity Privatisation

The Hon. R.B. MARTIN (16:15): I move:

That this council—

1. Recognises that this year marks 25 years since the privatisation of the Electricity Trust of South Australia by the Olsen government; and

2. Acknowledges that the decision to privatise ETSA has not delivered favourable outcomes for the South Australian community.

Winston Churchill said:

Truth is incontrovertible. Panic may resent it. Ignorance may deride it. Malice may distort it. But there it is.

Members may be aware that 2024 marks the 25^th anniversary of the Olsen Liberal government's privatisation of the Electricity Trust of South Australia. After it had spent roughly half a century under public ownership and control, the Electricity Corporations (Restructuring and Disposal) Act 1999 helped the Olsen Liberals bring an end to that era, laughing in the face of Thomas Playford's vision of state-owned and state-controlled electricity generation and distribution for South Australia—a vision he had worked hard to realise.

When Playford became Premier in 1938 he inherited a state that had been persistently in deficit. Having an economy dominated by agriculture, South Australia had long been at the mercy of commodity markets. Industrialisation seemed to Playford the obvious way forward into a more prosperous future, and it would give industry a running start, he knew, if he enabled them to access electricity at low cost.

Assisted by wartime regulations and considerable public support, Playford forced a royal commission into the private monopoly Adelaide Electricity Supply Company. Then, with financial backing from the commonwealth, where he was the fortunate beneficiary of the likeminded support from one of my heroes, Ben Chifley, Playford nationalised AESCo to create the Electricity Trust of South Australia in September 1946.

Playford's policies helped South Australia's industrial boom to take off, fundamentally transforming our economy and our identity as a state and giving many of us the lives we know today. Playford was a visionary in the true sense, which led to the economic and political pragmatism that enabled him to leap South Australia forward. He saw postwar opportunity and hungrily went after it, amid derision and obstruction from his own party, and his efforts paid extraordinary dividends. Too few were like Playford, and too few still are.

Indeed, along with the other baggage today's South Australian Liberals carry, they are still wearing the ETSA sale in the court of public opinion. That is not speculation by me—relatively recent opinion polls by entities such as The Advertiser have shown it. Going into the 1997 election saying they would not sell ETSA and then turning around and doing it anyway, was a stunning betrayal of the South Australian community, and some may say the SA Liberals are still struggling to recover public trust and credibility 25 years later.

But little wonder, because as recently as the term of the Marshall government the Liberals have demonstrated that they are still deeply attached to their ideologically driven practice of privatising essential public services. Against Playford's vision, the current Liberals apparently still do not want to give up the habit, but the South Australian community can plainly see that privatisation has created an electricity system that is dysfunctional in more than one way.

First, there is the matter of the infrastructure and the need to transition to new means of generation, against the backdrop of the deep, uncharted change that is taking place as the economy transitions to a net zero future. The energy system was built over the past century on engineering principles that no longer apply, that is, it was engineered so that a few large generators could supply energy into transmission lines, which in turn delivered into a thinner and thinner distribution network.

It was a one-way flow, with much of the information on how the system was functioning not being in real time. Now there is a multitude of generators supplying into the transmission network and into the distribution network, down to the level of residential rooftop solar and batteries exporting into the network. It is a multi-directional flow and needs to have real-time data to retain security and reliability of supplier.

Privatisation has complicated the pathway to make this engineering transition because regulatory reforms are clunky and slow to realise. This is despite the need for swift action because of the rapidly shifting global policies and economic landscape. The ageing of our generators coincides with the decarbonisation imperative to reduce fossil fuel consumption, as well as fossil fuels' inability to compete on price against wind and solar generators. The replacement is urgent, but privatisation is a barrier to the rebuild.

Private companies come at the answer to the various complexities and challenges of our energy system from the perspective of making a financial profit, not from the perspective of what engineering solution is needed or what would best serve the public interest. If planning for this system was fully in the hands of government, as it used to be, there would be an orderly build of new generation ahead of the closure of old generation. We could be much more agile and much more responsive both to community need and to economic and environmental imperatives.

Given the extraordinary results in driving the renewable transition that the Rann and Weatherill governments managed to achieve, and given what the Malinauskas government is now further positioning our state to achieve, it almost hurts to imagine the strides we could have made had the privatisation never occurred. Then there is the impact of privatisation on pricing and cost to consumers. Deciding to sell electricity through a reverse auction style market, rather than selling based on the cost to produce it, has been disastrous.

Generators bid into the market, and the Australian Energy Market Operator (AEMO) accepts offers from the lowest to the highest. AEMO only accepts bids where transmission line capacity is sufficient to convey that quantity of energy. That transmission constraint prevents the full price benefits of renewables being enjoyed because they are often further away from the demand centres. AEMO accepts bids up to the point where supply is balanced with demand, and then everyone with lower bids gets paid at the rate of the final bid, so almost everyone gets paid more than their original bid offer at all times.

My understanding is that the market allows bids in the range of minus $1,000 per megawatt hour to plus $16,600 per megawatt hour. Theoretically, allowing for bids above the marginal cost of operating the generator provides a revenue stream to fund capital investment. However, confidently calculating this extra revenue is fraught with uncertainty, and companies, therefore, err on the side of charging more to ensure that they can comfortably recover capital costs.

Moreover, the market rules allow companies to withdraw their bids up to the final moment and then re-bid that same capacity at a higher price for commercial reasons, as well as technical reasons. Remember, everyone gets paid at the final bid price, so a generator, realising supply is tight, can withdraw a small amount of capacity tied to a low price bid, then re-bid at a high price because they know it will be needed to match demand. Then their entire dispatch and every other generator's dispatched units will be paid at the top dollar.

I would like to give some examples that, to the best of my understanding, are from the past year of how that works, as documented by the Australian Energy Regulator, which reports on events where prices exceed $5,000 per megawatt hour. On 27 February this year, Energy Australia re-bid capacity at its Hallett plant from prices below $400 per megawatt hour and below $300 per megawatt hour to the price cap of $16,600 per megawatt hour. According to the AER, these re-bids for technical reasons contributed to the higher prices as they affected the final few megawatts needed at the time.

On 28 June 2023, AEMO needed 25 megawatts to 30 megawatts of capacity to meet demand because there was less wind than expected and the Victorian interconnector was constrained because of maintenance work. ENGIE re-bid 65 megawatts at the Snuggery power station from $4,664 to $13,281 and AGL re-bid 130 megawatts at Torrens Island from $176 to $15,500 per megawatt hour.

On 9 November 2023, when ENGIE's Pelican Point power station encountered technical issues, AGL withdrew its bid of 125 megawatts at a price below $176 and re-bid that capacity at $16,600 per megawatt hour, the maximum they could bid. This was a commercial decision, the AER said. It meant AGL was paid at an hourly rate of $2.1 million instead of the $22,000 that they had originally bid at. Let me just say that again: they were paid the hourly rate of $2.1 million instead of $22,000 for exactly the same service and exactly the same amount. As a commercial practice, that might fly because of the system that we have permitted to exist, but morally it is indefensible, and I would be stunned to hear a defence of this practice from any member here.

Of course, South Australia is not the only jurisdiction where this re-bidding behaviour takes place. It occurs across the National Electricity Market, but unlike most of the other jurisdictions participating in the NEM we have no state-owned generation that can help to apply downward pressure on prices, especially after the Marshall Liberal government leased the publicly owned generators purchased by the Weatherill government.

Had ETSA remained a publicly owned entity, our ability to influence the way that South Australia interacts with the NEM would have been much greater. We have lost almost entirely the ability to participate as an actor in this landscape. The sale of ETSA was presented to the public as necessary to protect the state from bankruptcy. The premier at the time said directly to the electorate via a statewide advertising campaign that, due to the state's debt position, 'there is no alternative'. He also stood in parliament and threatened a levy on everyone's power prices if ETSA was not sold, sneeringly calling it the Rann tax.

Let us make no mistake: putting South Australian power consumers in that position by selling ETSA was a choice by the Olsen Liberal government. In 1998, Don Dunstan correctly pointed out that, if you measured debt as a percentage of GSP, that percentage in South Australia was significantly higher during the Playford era than in 1993 when the Olsen government came to power. In actual fact, it was nearly double the percentage in 1949-50 compared to 1993.

The creation of ETSA as a public entity formed a crucial part of Playford's strategy to build our state's prosperity and it worked. Unsurprisingly, Dunstan had a lot more to say about the matter. He leapt to the defence of his old political adversary Playford's economically and morally sound basis for setting up ETSA as a publicly owned entity. Of the privatisation, he said:

The only reason that this course is being pursued, contrary to the experience in South Australia leading to the setting up of our publicly owned electricity undertaking, is the ideological position that the community and governments should run nothing in the way of service undertaking and that social needs will inevitably be met if everything has as its sole object the making of private profit.

He continued:

In planning our future, it serves neither economic efficiency nor social justice to destroy institutions which society, from experience, has created and which are efficiently meeting the social needs of the community. They are not impediments to progress but foundations for it.

So did the privatisation of ETSA serve the public interest? I cannot construct any version of events where the answer is anything but a resounding no, but we may well hear arguments from members opposite that the Olsen government's betrayal of Playford's vision and its betrayal of the South Australian people were justified.

In an effort not to depress yourself, you can try not to contemplate all that South Australia lost in the sale of ETSA, but even if you can push it to the back of your mind it is lodged permanently in the collective awareness of our community—our recognition of its magnitude and the incontrovertible truth of its being. Ignorance may deride it. Malice may distort it. But there it is.

Debate adjourned on motion of Hon. B.R. Hood.