[PEN-L:123] Fw: Electricity deregulation

[Ellen Dannin]

-----Original Message-----
From: BRIAN EASTON <[EMAIL PROTECTED]>
To: Ellen Dannin <[EMAIL PROTECTED]>
Date: Tuesday, May 19, 1998 2:55 PM
Subject: Electricity deregulation


Dear Ellen,

Here is my just published "Listener" column on the question you ask. To be
even more direct, in my view the rise in world interest rates (as a result
of the Reagan deficit and also the Fed's shift from targetting interest
rates) drives the pressure to privatisation and the increasing power of the
financial sector. This is a long term structural shift of course.

Brian.

THE INFRASTRUCTURAL DEFICIT
ACCIDENTS OR CARELESSNESS?
As Lady Bracknell could have said "to lose one could be regarded as a
tragedy, to lose two looks like carelessness." She may well have been
speechless learning that Auckland has had three major outages this decade
with perhaps two more to come. The recent loss of power to Auckland's CBD
follows a national power shortage of 1992, and a Auckland-wide water
shortage. Experts tell me that the Auckland sewerage system is close to
capacity, non-experts draw the same conclusion about the Auckland roading.
Just how many cases of infrastructural overload does there have to be
before a pattern is acknowledged?
Do not expect such an recognition by the inquiry into the latest power
outage. Its terms of reference are narrow, for such enquiries look at the
specificities of a particular event, not the generalities of a pattern of
events. Detailed and enlightening as it is, the (Stent) report of the
Commissioner for Health on the Christchurch Hospital's emergency department
does not ask whether the situation was true of some other emergency
departments, or of some other hospital departments. The answer to each
question is "probably yes". The factors which created the Christchurch
environment apply elsewhere, possibly with greater force. Christchurch
Hospital may well have an above average service. It was the sheer
professionalism of its doctors and nurses which led to the public outcry,
because they thought they were not meeting their own personal standards.
There was a elemental clash between that professionalism and a generic
management unsympathetic to or ignorant of it. The health reforms were
predicated on the principle of imposing generic management over medical
professionalism. It failed in Christchurch, and it has failed elsewhere.
So what of the repeated evidence of failure of Auckland's physical
infrastructure? It would be easy to blame it on the corporatization and
privatization (and other financial antics such as mergers and takeovers). I
think not, other than they distracted management from its job of
maintaining adequate infrastructure. More fundamentally, the shortages are
the consequences of today's real interest rates which are much higher than
in the 1970s. If capital investment is more expensive, firms will cut back,
as happened from the mid-1980s. An easy - almost invisible way - of cutting
back is by squeezing the safety margins, that extra capacity installed to
deal with the unexpected. This seems to have be happened with national
electricity supply, with Auckland's water supply and local electricity grid
(and its sewerage and roads). Auckland has been the most vulnerable because
it has grown fastest. Other urban centres may have serious outages in the
next decade. (Does the harshness of the current drought arise from the same
mechanism? Farmers facing high costs of capital have under-invested in
alternative water supplies, with the squeezed safety margins exposed by the
weather.)
The three episodes (with two to come?) made the proposed privatization of
the Auckland Regional Services Trust (ARST) look foolish. Central
government has failed miserably to provide local government with a sound
financial basis. Reliance on property taxes or rates is limited, for they
are merited only by there not being better local ones. So instead of
promoting the ARST income flow to relieve local pressures, an ideologically
driven central government wanted to give it away. Only a parliament elected
on an MMP franchise stopped such foolishness. 
Once engineers reigned supreme resulting in, so it was said, the
over-building of the infrastructure: "gold plated" works was a frequent
criticism. Today it is the accountants who rule, and the infrastructure is
under-built for emergencies: the pewter is not taking the pressure. The
public may reflect on whether they would prefer to pay more at the
beginning, or suffer the deprivations when the safety margins are exceeded.