Think twice before flicking the switch

What to do with Aurora? PHOTO: LINDA ROBERTSON
What to do with Aurora? PHOTO: LINDA ROBERTSON
Former Wellington city councillor Sue Kedgley has a cautionary tale to tell about selling electricity companies.

I see the Dunedin City Council is debating whether to sell its locally owned electricity distribution network, Aurora Energy, which provides power to Dunedin, Central Otago and the Lakes District.

I note also councillors are being assured by officers and "independent advisers" that privatising the network is the only sensible option for the cash-strapped Dunedin City Council.

They are also claiming privatising the network would result in much-needed investment in the network, as well as a significant revenue boost for the council.

So, I thought it might be useful to recall the sorry saga of what happened when Wellington City Council decided, back in the 1990s, to sell its well-managed, locally run electricity network called Capital Power, to a Canadian multinational corporation, called TransAlta.

I was a Wellington city councillor at the time, and councillors were assured by staff and a raft of "independent advisers" that owning an electricity network was not a good investment for a council, and that our electricity network would be run far more efficiently by a private sector company that would have the capital to provide much-needed investment in the network.


We were also assured the Canadian company that wanted to buy the network, TransAlta, was a long-term investor that was committed to investing heavily in upgrading our electricity network.

Despite strong opposition from the public, who didn’t buy these arguments, the council narrowly voted to sell the company to TransAlta.

To placate Wellingtonians, the council persuaded TransAlta to set up a customer advisory board "to ensure the company does not get out of step with consumer needs".

But four years later, TransAlta on-sold Wellington’s electricity network to Kansas banking group United Networks, for $600 million, making a handsome profit.

It never did set up the customer advisory network it had promised. Nor did it invest in upgrading the network.

It turned out TransAlta’s main objective all along was to maximise returns to its shareholders, not to become a long-term investor in our electricity network.

Four years later, the new owner, United Networks, on-sold the network to a New Zealand electricity lines company, Vector, for $800m, making another hefty profit.

Six years after that, in 2008, Vector on-sold the network to its current owners, Hong-Kong-based Chinese multinational corporation CK Infrastructure Holdings Ltd and Hong Kong Electricity.

They set up a subsidiary company called Wellington Electricity Lines Ltd.

So, contrary to assurances at the time, our electricity network, once privatised, has been on-sold four times, and each sale brought windfall profits for its mostly foreign owners.

But it also brought higher line charges for Wellington ratepayers, because the value of the network was inflated with each sale.

And so the cost of our line charges went up by about 600% in a decade, to pay for the quadrupling of the capital value of the network.

And while our electricity network appears to be running efficiently, there has been little obvious investment in the network, aside from standard maintenance.

Indeed, the run-down state of our electricity network was the main justification given for selling off Wellington’s trolley bus network in 2014.

My advice to Dunedin city councillors who are deciding whether to sell Otago’s local electricity lines network, is to take the advice of independent experts with a grain of salt and be aware that there are lots of risks and few benefits from selling a strategic, monopoly infrastructure asset like Aurora Energy.

Once privatised, the council will have no influence over the local electricity network or whether a new company will decide to invest in upgrading the network.

It will have no say, either, over the cost of line charges or whether the network ends up being on-sold on a regular basis, as the Wellington electricity network has been, or even what would happen in an emergency — an important consideration, surely, as the Otago electricity distribution network is a monopoly infrastructure.

And if the main objective of private owners is to maximise profits to its shareholders, and to on-sell the network, there will be little incentive for them to invest in upgrading the network, which seems to be one of the main justifications for the proposed sale.

 Sue Kedgley is a former Wellington city councillor, who opposed the sale of Capital Power, and a former Green MP.