Power Politics

Power Politics is the title of a book of essays edited by John Spoehr. It is subtitled "The electricity crisis and you". While this book looks specifically at the case of the privatisation of electricity in South Australia, the lessons are widely applicable.

Public ownership was widespread in Australia by the 1930s. South Australia was served by the Adelaide Electric Supply Company (AESC), a private company, incorporated in London.

The demands of the second world war for industrial growth greatly increased the demand for power which demand continued to grow post war. At this time socialist principles demanded nationalisation of key industries but this pressure was lost in SA. Post war politics was dominated by the conservative government of Tom Playford. He presided over the industrialisation of South australia but became increasingly frustrated with the directions of AESC and its reluctance to expand in the directions the Premier sought. The company operated with its shareholders in mind, to maximise returns, end of story.

Playford called a Royal Commission into the AESC. Key advisors to Playford had been influenced by Keynesian economic ideas which provided justification for public involvement and investment in nation building. It was this ideology, not socialism, that underpinned the nationalisation of the industry in South Australia in 1946. However, key pressures coming from the crisis of the great depression, social unrest, the demand for industrialisation as a way of providing employment and satisfying rising consumer demands, the apparent crisis in capitalism and the threat of communism all played a part.

Now that we have come full circle it is interesting to look at the arguments for nationalisation put by the Royal Commission. The key point was the government's argument for the use of Leigh creek coal as a local guaranteed supply for generating power. The coal, however, was low grade and would be costly to devlop and build or modify power stations to use this fuel. Increasing shipping problems related to the supply of coal from interstate and the demands of those states effecting supply was the concern of government, but not the AESC. Shareholders were more important to the company than consumers. Faced with legislation by government to regulate its policies and prices the AESC actually proposed the royal commission. It proved its downfall. The royal commission recommended the assets of the AESC be aquired and the shareholders recompensed.

So in 1945, Tom Playford introduced the Electricity Trust of South Australia Act into the South australian Parliament. The bill was passed on 9th april, 1946.

The key issues raised by the commission were:

The conflict between shareholder and public interest.
Lack of restraint on dividends and the consequent rise in prices to the consumer.
The need to set rates that would support local industrial development.
The financial advantages of public ownership.
A public utility would be exempt from taxation and would be able to access capital at lower rates of interest available to government.
It was argued this would lower costs which would be passed on to consumers in lower prices.
The slow rate of electrification, particularly in country areas.
Provision of power to country areas was deemed un-economic by AESC.
Public provision would take a longer term view of what was economic and in the public interest.
The adoption of new technologies in power generation.
Developing new technologies such as the use of sub-bituminous coal was costly with no economic incentive to do so.
A public utility would seek out and introduce new technologies in the interests of the public.

The issues, surprisingly, still resonate today!

Peter Russell
Draft 30 May 2003