Peter Harris, former member of the Electricity Commission, Jim Turner Policy Analyst, and Dick Werry, former chair of the Utilities Committee of the Greater Wellington Regional Council compared outcomes from the privatised electricity network and the publicly-owned bulk water distribution network at a recent seminar in Wellington.

The differences are striking and significant as the Government is pressing ahead with its privatisation of the New Zealand's electricity generation under its mixed-ownership model.

Wellington region's water distribution network is still in public ownership. The region's electricity distribution network was privatised in 1990. The two networks cover the same area and both distribute an essential service. In 1990 the asset value of the water network was $168million and the cost of distributing water was $22.2million; the asset value of the electricity network was $180million and the cost of electricity distribution was $36million. In 2010 the water distribution cost rose to $26.1million, a 17.5% increase. Privatised electricity distribution cost $142.5million, a 295% increase.

 

Why the difference? The answer is in the capital gain, and the required return on appreciated assets.

 

50% of Capital Power was sold to TransAlta in 1992 for $120million and the other half in 1996 for $90million. In 2000, TransAlta sold to Kansas banking group United Networks for $560million, making a handsome (and tax-free) capital gain. In 2004, United Networks sold to New Zealand company Vector for $800million, another substantial tax-free capital gain. In 2008 Vector sold the network to its current owner, a New Zealand registered subsidiary of Chinese company Cheung Kong Infrastructure Holdings Limited, for $785million.

 

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