LEGISLATIVE COUNCIL INQUIRY INTO THE LEASING OF ELECTRICITY INFRASTRUCTURE NSW GOVERNMENT SUBMISSION

LEGISLATIVE COUNCIL INQUIRY INTO THE LEASING OF ELECTRICITY INFRASTRUCTURE NSW GOVERNMENT SUBMISSION

Executive Summary The NSW Government s Rebuilding NSW Plan will turbocharge the NSW economy by investing $20 billion in infrastructure, made possible through the long term lease of 49 per cent of the electricity networks. The community has actively participated in consultation over a lengthy period, well before the recent State election. Support for the package is resounding and the Government was returned after making clear its intentions to lease 49 per cent of the electricity networks to fund this once in a generation investment program. Leasing the State s electricity businesses means funds can be released for use in critical projects that improve our quality of life now, rather than years into the future. These infrastructure investments are important for sustaining productivity growth in our major centres and connecting our regional communities, as well as supporting population growth toward almost 6 million people in Sydney and more than 9 million people in NSW. Rebuilding NSW will ensure that, as our community and economy grow, NSW residents benefit from vast improvements in transport, education, health, water, sports and arts infrastructure. Improving infrastructure will increase the productivity of the NSW economy, which in turn will drive growth, create new jobs, improve standards of living and boost our competiveness in the international economy. Detailed analysis by Deloitte Access Economics found the Rebuilding NSW Plan will boost the economy by almost $300 billion in just over 20 years and generate over 120,000 jobs. 1 A productive and growing economy allows us to continue to provide for the most vulnerable members of our community and deliver government services more efficiently and effectively. This $20 billion investment in infrastructure is only made possible by releasing capital locked up in the electricity network businesses. The funds we raise are vital, but so is protection for consumers, so the Government will only go ahead with the long term lease of these assets if it is in the best interests of the people of NSW. Electricity networks are among the most strictly regulated sectors in the economy. Companies operating electricity networks are subject to economic regulation by the Australian Energy Regulator, which sets prices for electricity networks usually every five years, irrespective of who owns or operates the businesses. In addition, safety, reliability and responsiveness are regulated under the Electricity Supply Act 1995 and other regulations which are enforced through licences. The government will also retain significant influence over the assets when they are leased. There are a number of levers that allow the government to protect the public interest in key areas including reliability, safety, planning and environment and consumer pricing. 1 Deloitte Access Economics, 2014, Economic Impact of State Infrastructure Strategy Rebuilding NSW, page i 2

The Proposed Transactions With the endorsement of the public at the recent State election, the Government intends to proceed with a 99 year lease of 49 per cent of the network businesses. The regional distribution network, Essential Energy, will remain 100 per cent Government owned. The transactions are intended to be undertaken as trade sales, but with the flexibility to undertake one transaction as an Initial Public Offering (IPO) if market conditions suggest that this would achieve the best outcome for taxpayers. TransGrid, which owns, operates and manages one of the largest high voltage transmission networks in Australia, will be the first business to be leased. 100 per cent of TransGrid is proposed to be leased. The Government is expecting to lease 50.4 per cent of Ausgrid and 50.4 per cent of Endeavour Energy. Final proportions will be calculated in accordance with the Government s commitment to maintain 51 per cent of the network businesses in public hands. The State s interests in the leased network businesses will be overseen by special independently governed holding entities. The new holding entities will have a mandate to protect the value of taxpayers interest and maximise returns from the leased assets through the exercise of shareholder rights. The sequencing of Ausgrid and Endeavour Energy will be confirmed in due course, subject to market conditions. The Government will introduce legislation to seek authorisation from the Parliament for the transactions, and to implement the additional consumer protections identified in this submission. Before any transaction can be completed, the following conditions will be required to be met: The transaction will have to represent value for money for the State, with expected proceeds exceeding the retention value. All necessary regulatory authorisations have been obtained including any necessary Foreign Investment Review Board (FIRB) or Australian Competition and Consumer Commission (ACCC) approvals. The Electricity Price Commissioner will review the pre transaction reports and confirm to the Government that the lease will not put upward pressure on prices in the short, medium and long term. The Electricity Price Guarantee must be signed by the successful bidder, guaranteeing that total network charges will be lower in 2019 than they were in 2014. 3

Protections for Consumers Consumers can be confident that the partial lease has been designed to ensure that they will continue to enjoy the same protections they currently have, along with expanded protections: 1. Ownership. NSW will remain the owner of all electricity transmission or distribution assets and will only lease 49 per cent of those assets. 2. Retained Interests. The State will retain an interest in the Ausgrid and Endeavour Energy assets. These interests will be held in independent statutory corporations mandated to protect the value of retained interest and maximise returns to the State. 3. Electricity Price Guarantee. The businesses will be required to guarantee that network charges will be lower in 2019 than they were in 2014 and that savings from greater efficiency are passed on to consumers, in accordance with the Australian Energy Regulator s (AER) Efficiency Benefit Sharing Scheme. The businesses will provide an annual statement on their compliance with the guarantee. 4. Electricity Price Commissioner. Professor Allan Fels will report on each transaction to confirm the transactions will not put upward pressure on network charges in the short, medium and long term. He will also review annual Price Guarantee statements and refer any concerns to the AER or ACCC. 5. Continued Price Regulation. The Australian Energy Regulator (AER) will continue to determine network charges for the electricity network businesses, and enforce compliance with those determinations. 6. Reliability Standards. The network businesses have legislated obligations regarding safety and reliability of the transmission and distribution network. These obligations will remain in place regardless of ownership. 7. Terms of the lease. The lease can be terminated for several reasons, including failing to operate or maintain the network in accordance with good operating practice and the regulatory regime, the network ceases to be used as an electricity network, insolvency of the lessee, the revocation of a major authorisation such as National Electricity Market (NEM) registration or the NSW operating licence. The State s consent is also required with respect to a change of control of the lessee. 8. Licence Requirements. Businesses will be required to hold a licence and pay licence fees, which will give the State control over suitability and capability of the network operators and require a continued substantial operational presence in Australia, and set conditions to manage business continuity, reliability, network performance and safety. 9. Independent Safety and Reliability Regulator. The Independent Pricing and Regulatory Tribunal (IPART) will be appointed to ensure compliance with licence conditions and safety and reliability standards. IPART will receive regular reports in relation to reliability and customer service standards and require annual independent audits of reliability and customer service standards. IPART will have the power to appoint inspectors for electrical installations and equipment and the investigation of serious electricity accidents. 4

10. Step in Rights. The Energy Minister will be able to trigger new step in rights should a breach of licence or electricity regulatory obligation threaten the safe, secure or reliable supply of electricity. Under this power, IPART will become the network administrator and will appoint a step in operator until the Minister determines that it is no longer required. 11. Stronger Enforcement Powers. The Energy Minister s powers will be expanded to give the Minister direction powers to rectify breaches, impose enforceable undertakings, and confer the power to cancel licences. IPART s powers will be expanded to include stronger powers of direction, stronger information gathering powers and enforceable undertakings. 12. Tougher Penalties. Penalties will increase from the current maximum of $27,500. Penalties in the range of $250,000 to $1 million will be imposed for serious breaches including failure to comply with rectification direction, obstruction of Step In Operator, failure to take all reasonable steps to ensure that the design, construction and operation of the network is safe, breach of enforceable undertaking, and failure to provide information to IPART when requested. 13. Improved Planning and Environmental Regulation. IPART will monitor compliance with a new Environmental Planning Code of Practice, to make sure that electricity network developments comply with environmental safeguards and community consultation requirements. Compliance with this Code will be a licence condition. 14. National Electricity Market Requirements. The businesses must be registered with the Australian Energy Market Operator (AEMO) and comply with the requirements of the National Electricity Law and Rules including obligations regarding power system security, system reliability, network planning and development and metering. Revocation of NEM registration will be grounds to cancel the lease. 15. National Energy Customer Framework. The proposed transaction will have no impact upon access to the network for customers. All NSW electricity companies operate under the National Energy Customer Framework (NECF), administered and enforced by the AER, irrespective of public or private ownership. This means: Guaranteed access to electricity, even with a poor payment history; Strong legal protections for vulnerable consumers; No disconnections for vulnerable consumers on a payment plan; Homes with life support equipment cannot be disconnected, under any circumstances; and Small businesses and household customers have significant price and quality guarantees, backed by law. 5

Community Benefits of the Rebuilding NSW Investment Program The funding raised through the partial lease of the networks will be re invested directly into a wide range of projects across the State all of which aim to improve the quality of life for all members of the community, including the most vulnerable. Funds from the long term lease will be used to ease urban congestion, increase investment in public transport, invest in water infrastructure to support rural and regional areas, grow the NSW economy, and create opportunities across the regions of NSW. 2 Work on delivering the ambitious Rebuilding NSW Plan has already begun. One third of all the funds delivered by the long term leases will be invested in regional areas, to ensure the benefits are spread across the community. The Rebuilding NSW Plan will provide: $8.9 billion for urban public transport (including building a second Sydney Harbour rail crossing as part of the Sydney Rapid Transit program, and the construction of the Parramatta Light Rail) $2.4 billion for investment in urban roads (including WestConnex) $4.1 billion for investment in regional roads and rail to underpin economic growth across the whole State $1.2 billion for a Sports and Cultural Fund, capitalising on existing iconic assets and precincts, and improving the presence of facilities in Western Sydney $1 billion for regional and metropolitan schools $1 billion for regional and metropolitan hospitals $1 billion for water security for our regional communities $300 million for regional tourism and the environment. Economic Benefits of Rebuilding NSW The Government s Rebuilding NSW Plan will turbocharge NSW, boosting the economy by almost $300 billion in just over 20 years and creating more than 120,000 jobs. 3 The investment in infrastructure made possible by the Rebuilding NSW Plan will allow NSW to better manage the increase in population and economic activity that will occur over the coming decades. Rebuilding NSW will increase NSW s Gross State Product (GSP) by $30.9 billion by 2035 36 (measured in 2013 prices); this is a real increase of 3.6 per cent above the level of GSP that would occur without the Rebuilding NSW plan. 4 The increase in GSP comes from both a more efficient electricity network and also from the reinvestment of funds from the partial lease of electricity network assets into productive infrastructure. 2 Deloitte Access Economics, 2014, Economic Impact of State Infrastructure Strategy Rebuilding NSW, page i 3 Ibid. 4 Ibid. 6

Reinvestment in infrastructure will allow NSW to better manage the increase in population and economic activity that will occur over the coming decades. Better infrastructure will also help attract more business to NSW, creating more jobs and easier access to markets boosting economic growth. Prices will be lower The Premier has made a clear commitment that the successful bidder for the network leases will be required to sign a Price Guarantee that total network prices will be lower in 2019 than they were in 2014. To provide additional public confidence that the transactions will not lead to higher electricity network prices the NSW Government will engage Professor Allan Fels as the Electricity Price Commissioner. The Price Commissioner will review the pre transaction reports and report to the Government to confirm that the lease will not put upward pressure on prices in the short, medium and long term. The evidence from other Australian states shows that privatised networks keep downward pressure on prices. For example, real network prices have fallen 17 per cent and 18 per cent in South Australia and Victoria since those networks were privatized in the late 1990s. Over the same period, real prices have risen by 122 per cent in NSW and 140 per cent in Queensland under government ownership. 5 Reliability will be maintained Minimum reliability standards are enshrined by license conditions, which will continue to apply irrespective of who operates the electricity network. Currently the network businesses have legislated obligations regarding the safety and reliability of the transmission and distribution networks. These obligations will remain in place regardless of control and operatorship. The regulatory framework includes incentives for distribution and transmission businesses to improve their level of service performance compared to historic outcomes over time. The framework also outlines penalties if their performance level deteriorates. A report prepared by Houston Kemp for the Department of Premier and Cabinet 6 presented data on reliability outcomes for each of the NSW network businesses since 2006, and compared this with the performance of other distribution and transmission businesses in the National Electricity Market. The data showed that: The reliability performance of the NSW network businesses has traditionally been comparable to that of other network businesses in the NEM; and 5 Ernst & Young, 2014, Electricity network services. Long term trends in prices and costs, page 6 6 HoustonKemp, 2014, Electricity Networks Service Standards: An Overview: A Report for the NSW Department of Premier and Cabinet, page iv 7

The reliability performance of privately owned network businesses (i.e., those in Victoria and South Australia) is typically quite high (relative to the other network businesses) and has not deteriorated over time. This evidence confirms that the partial lease of the NSW network business will not lead to deterioration in reliability. A report by Ernst and Young in 2014 7 supported the Houston Kemp work, finding that reliability and service levels had improved in Victoria and South Australia after privatisation. This suggests that the efficiency improvements in privatised states have not been made at the expense of reliability and that non privatised States are not operating efficiently. Recent final determination of the Australian Energy Regulator The AER s recent final determination on pricing released on 30 April 2015, made clear that further efficiencies will need to be introduced into the NSW network businesses, regardless of the ownership arrangements. This is as a result of benchmarking conducted by the AER that compared the efficiency of the NSW distribution businesses with other network businesses across the country. The NSW Government shares the objective of the AER in easing cost of living pressures on households through lower electricity bills but it also wants to ensure the right balance between affordability, reliability and safety. Under the AER final determination, typical residential customers could receive the following average annual discounts on their electricity bills: 8 Ausgrid $165 Endeavour Energy $106 Essential Energy $313 However, the decision from the AER did not provide funding for a transition period for the NSW businesses to implement the necessary reforms to achieve the required level of efficiency safely and responsibly. The lack of funding for a transition period is likely to lead to both a significant reduction in the profitability of the businesses over coming years and a need for an accelerated schedule of staff reduction. While it is too early to definitively assess the impact of the AER s decision on the State Budget, work undertaken for the Half Year Review in December suggests that dividends and tax equivalent payments from the distribution businesses may fall to zero over the forward estimates. A final estimate of the impact of the AER final determination will be provided in the upcoming State Budget. The AER decision will require the reduction of staff at the distribution businesses, irrespective of ownership. The Government is working with the businesses to review the details of the final 7 Ernst & Young, 2014, Electricity network services. Long term trends in prices and costs, page 10 8 Australian Energy Regulator, 2015, AER expects final decisions to lower electricity bills for ACT and NSW customers, online https://www.aer.gov.au/node/31954 8

determination and to consider how the necessary reforms can be delivered without compromising the safety and reliability of the State s electricity networks. Impact on the State Budget The transaction is expected to lead to a significant improvement in the State s financial position over the forward estimates period including the elimination of the General Government Sector s Net Debt position and a reduction in Total State Sector net debt of around $30 billion. The transaction is also expected to lead to an improvement in the Budget result (Budget surplus/deficit) over the forward estimates. In particular the Budget result will benefit from Commonwealth incentive payments and earnings on the investment of the proceeds which will more than offset the reduction in revenue from distributions from the businesses and the impact of the additional infrastructure investment program. The loss of the government fee from the businesses that compensates the State for the risk of guaranteeing the electricity networks debt is the largest component of the reduction in revenue. As the Government will no longer be guaranteeing this debt, there is a significant reduction in risk for the State s balance sheet. This is likely to lead to reduced borrowing costs for the State. In Victoria s case, which no longer owns its electricity utilities, borrowing costs have averaged around 3 basis points less than NSW over 2014. 9 State taxation revenues are also expected to benefit from the forecast boost to the economy from the Rebuilding NSW program of almost $300 billion in just over 20 years and the generation of over 120,000 jobs. Over time there is a relatively stable relationship between taxation revenues and the growth in the economy. 10 Over the last 10 years, GSP has grown by 64 per cent 11 and Government tax revenue has grown by 61 per cent. 12 Over the longer term, as the full Rebuilding NSW infrastructure investment program is rolled out, the reduction in distributions from the network businesses can be managed within the context of a growing economy, the Government s responsible fiscal strategy and track record for responsible fiscal management. 9 Unpublished NSW Treasury Corporation data, 2014. 10 Deloitte Access Economics, 2014, Economic Impact of State Infrastructure Strategy Rebuilding NSW, page i 11 ABS data 2013 14 12 NSW Treasury Budget Data 2013 14 9

Consultation Hundreds of organisations and individuals added value by having their say through the Rebuilding NSW consultation process, which was considered by the Government in fully adopting the recommendations proposed by Infrastructure NSW to deliver the new State Infrastructure Strategy. The consultation undertaken with the community through the Rebuilding NSW process highlighted the key themes: Support for infrastructure investment stakeholders overwhelmingly supported a step change in infrastructure investment, and provided many proposals for consideration as the plan is rolled out Planning for the longer term taxpayer investment in new infrastructure must be undertaken in the context of a long term vision for the State. There was strong support for the role of Infrastructure NSW in ensuring projects are selected on the basis of rigorous analysis Ensuring Sydney remains a liveable city community feedback was strongly informed by the understanding that Sydney needs infrastructure to accommodate a growing population. This includes improving our roads to reduce congestion, and building new public transport to align with housing and jobs. The Government s commitment to investing in schools, hospitals, and sporting and cultural infrastructure was also supported Connecting regional NSW to markets and opportunities regional communities were highly engaged in this process, with the highest priority being enhanced connectivity to secure the future prosperity and vitality of regional and rural NSW. The Government s commitment to investing in regional areas was strongly supported, including many proposals for new road, rail, water and tourism projects. 10

Impact on customers There will be no negative impact on the customers as a result of the transaction. Issue Under public ownership Under the proposed lease Electricity The AER sets network electricity revenues The AER sets network electricity revenues prices The lease includes a Price Guarantee that total network prices will be lower in 2019 than they were in 2014. Professor Allan Fels is appointed as Price Commissioner to review the pretransaction reports and confirm to the Government to that the lease will not put upward pressure on prices in the short, medium and long term. Jobs and employment Safety and reliability Emergency Response Terms and conditions of employment are set through an Enterprise Agreement agreed between the employer and employees, overseen by the Fair Work Commission. The AER final determination will result in job losses. TransGrid and Networks NSW have legislated obligations regarding the safety and reliability of the transmission and distribution network. The regulatory framework includes incentives for the distribution and transmission businesses to improve their level of service performance compared to historic outcomes over time as well as penalties if their performance level deteriorates. There are agreements in place to pull in additional resources to deal with emergency situations. Terms and conditions of employment are set through an Enterprise Agreement agreed between the employer and employees, overseen by the Fair Work Commission. The AER final determination will result in job losses. The Fair Work Act and Enabling Legislation will in effect ensure continuity of employees' accrued entitlements including superannuation. The new lease holder will have legislated obligations regarding the safety and reliability of the transmission and distribution network. The regulatory framework will continue to include incentives for the distribution and transmission businesses to improve their level of service performance compared to historic outcomes over time, as well as penalties if their performance level deteriorates. There are agreements in place to pull in additional resources to deal with emergency situations. These agreements will remain in place. 11

Issue Under public ownership Under the proposed lease Infrastructure No additional infrastructure investment The Rebuilding NSW Plan will provide: investment o $8.9 billion for urban public transport (including building a second Sydney Harbour rail crossing as part of the Sydney Rapid Transit program, and the construction of the Parramatta Light Rail) o $2.4 billion for investment in urban roads (including WestConnex) o $4.1 billion for investment in regional roads and rail to underpin economic growth across the whole State o $1.2 billion for a Sports and Cultural Fund, capitalising on existing iconic assets and precincts, and improving the presence of facilities in Western Sydney o $1 billion for regional and metropolitan schools o $1 billion for regional and metropolitan hospitals o $1 billion for water security for our regional communities o $300 million for regional tourism and the environment. The economy boosted by $300 billion over 20 years. Over 120,000 new jobs created by 2035. New technologies Dividends and fiscal implications The existing regulatory framework provides strong incentives for networks to innovate and adopt new technology for the longterm interests of electricity consumers. Distributions are already falling and are forecast to fall further under the AER s final determination. While it is too early to completely assess the impact of the AER determination, work undertaken for the Half Year Review in December suggests that the dividends and taxes from the distribution businesses may fall to zero over the forward estimates. The existing regulatory framework provides strong incentives for networks to innovate and adopt new technology for the longterm interests of electricity consumers. Privately managed businesses are free to invest in new technologies without being constrained by State budget priorities. As a joint holder, the Government will benefit from any improvement in financial return from private management of Ausgrid and Endeavour Energy. The Government will continue to receive dividends and tax equivalent payments from Essential Energy which will remain wholly Government owned and from the leased businesses, equal to its holdings in those businesses. Fees charged by the Government for guaranteeing electricity company debt will be removed, as will the risk to the State from electricity company borrowings. Reduced risk to the State is likely to lead to lower borrowing costs. 12

Value The Government is committed to its transformative $20 billion infrastructure program and stands by that commitment. The $20 billion will be delivered from the proceeds of transaction, the $2 billion Commonwealth incentive and the investment earnings that will accrue as the infrastructure program is rolled out over time. In addition, the Government has reserved an additional $2 billion that has already been deposited in the Government s Restart NSW infrastructure fund to provide additional assurance that the funding will be available. While exact lease proceeds can only be determined by the transaction process, there are compelling reasons to believe that the lease will be a very attractive investment proposition: The electricity assets offer a once in a generation opportunity for investors to acquire a stake in marquee assets that provide exposure to Australia s most populous state and strongest growing economy contributing a combined 30.8 per cent of Australia s GDP. The withdrawal of competing transactions by the Queensland Government will increase the likely level of competition for, and interest in, the NSW transaction process. The stable and predictable returns from regulated utility businesses are highly attractive in the current low interest rate environment. The NSW Government has a strong record in achieving higher than expected outcomes in asset sales most notable in the successful long term lease of the NSW ports businesses, the results of which substantially exceeded market expectation. New South Wales and the Commonwealth have also signed an agreement which will see NSW receive $2 billion in incentive payments to be invested in crucial infrastructure projects. This followed the Federal Government signing its first agreement under its asset recycling initiative with the Labor Government in the Australian Capital Territory. The signed agreements are available on the COAG website https://www.coag.gov.au/. Expert Reports Multiple expert reports have made the case for private investment in electricity networks. Ernst and Young s report to NSW Treasury, Electricity network services: long term trends and costs stated 13 network prices for typical residential customers have fallen in real terms since privatisation. By contrast, network prices in NSW and Queensland have increased in real terms by over 100 per cent in the same period. The Productivity Commission 14 recommended in their review of the Electricity Networks in 2013 that State and Territory governments should privatise their government owned network businesses. The Commission noted: State owned network businesses have conflicting objectives, which reduce their efficiency and undermine the effectiveness of incentive regulation. Their privately owned counterparts are better at efficiently meeting the long term interests of their consumers. 13 Ernst & Young, 2014, Electricity network services. Long term trends in prices and costs, page 3 14 Productivity Commission 2013, Electricity Network Regulatory Frameworks, Report No. 62, Canberra, page 3 13

The Commission conducted benchmarking which considered the relative efficiencies of electricity network businesses around Australia and found that privately managed businesses have a lower operating cost per kilometre and tend to have a higher customer to employee ratio. The Productivity Commission further noted that: The efficiency of some network businesses could be improved. The Commission s analysis of several metrics suggests that there are significant differences in the performance of the various businesses and particularly large gaps between the performance of state owned corporations and privately operated businesses. Differences between businesses should not be surprising and that as a group, the aggregate productivity outcomes of state owned businesses are poorer than their private peers. The Commission concluded that evidence appears to suggest that state owned enterprises are less efficient than their private sector peers. The best remedy is privatisation. 15 ACCC chairman Rod Sims also supports the lease transactions in NSW, saying that private sector ownership of assets provides better incentives for better performance, 16 Mr Sims also said the sale of monopoly assets such as the electricity networks was not concerning because they were subject to strong independent regulation, regardless of their ownership. Mr Sims said, If the private sector owns them, they will run them more efficiently and therefore, given a constant regulatory regime, prices in NSW will be lower in future if they are privately owned. You've only got to look at the performance of the publicly owned networks against the private ones it's chalk and cheese. 17 Uniting Care Australia s report Network tariffs applicable to households in Australia: empirical evidence stated The average network charge to households in Victoria is about a third of that elsewhere in the NEM' and 'the network element of electricity bills has been rising since 2007 08 in all states, but in Victoria the rises have been at a lower rate. 18 The economic benchmarking report for the AER by Economic Insights stated Efficiency scores indicate very large efficiency gaps for the NSW/ACT [Distribution Network Service Providers (DNSPs)] relative to the frontier performers on opex efficiency, CitiPower and Powercor. These two Victorian DNSPs have contrasting metropolitan and rural coverage and share common ownership with SA Power Networks which is the third best performer. 19 The Grattan Institute s report, Putting the customer back in front, how to make electricity cheaper, noted Whilst privatisation has not always been politically popular, the evidence of relative price stability and supply reliability in the privatised sectors suggest it has worked and other factors also 15 Productivity Commission 2013, Electricity Network Regulatory Frameworks, Report No. 62, Canberra, pages 12, 263, 279 16 ABC News, 2014, ACCC chairman Sims argues the benefits of privatisation, online. http://www.abc.net.au/news/2014 01 06/accc chairman sims floats privatisation of power post/5185970 17 Sky News, 2015, ACCC says power selloffs will lower prices, online. http://www.skynews.com.au/news/national/2015/02/19/accc says power selloffs will lowerprices.html#sthash.hj8mmq8c.dpuf 18 UnitingCare Australia, 2015, Network tariffs applicable to households in Australia: empirical evidence, page 5 19 Economic Insights, 2014, Economic Benchmarking Assessment of Operating Expenditure for NSW and ACT Electricity DNSPs, page v 14

suggest that government owned companies are less efficient in their operational spending than are private companies. 20 Frontier Economics report for the NSW Department of Premier and Cabinet, Regulatory arrangements for electricity network pricing, concluded while network tariffs have been increasing in all jurisdictions it is apparent that the network tariffs for a typical residential customer are lowest in Victoria, where the network businesses are privately owned and The evidence suggests that retail prices paid by customers have increased at the same rate, or more slowly, in states with privately owned network businesses. 21 The Energy Users Association of Australia s report, A comparison of outcomes delivered by electricity transmission network service providers in the National Electricity Market, stated "The provision of transmission network services in Victoria has been consistently better than in other states in respect of regulated revenues, the size of the regulated asset base, and the level of operating expenditure and capital expenditure" and "The empirical assessment of outcomes over the last 10 years, as shown in this paper, suggests that the Victorian arrangements have delivered better outcomes for energy users." 22 Houston Kemp s report for the NSW Department of Premier and Cabinet, Electricity Networks Service Standards: An Overview, stated the reliability performances of privatised distribution businesses is relatively high compared with the publicly owned distribution businesses, and has generally remained constant or improved over time. 23 Together, these expert reports provide a comprehensive case for benefits to the public of private investment in electricity networks. Conclusion The NSW Government is seeking to turbocharge the economy by unlocking the capital held within the state s electricity network assets and using these funds to invest in new, productive, infrastructure. The Rebuilding NSW Plan will deliver an unprecedented state wide infrastructure program while also ensuring long standing state protections for NSW electricity customers and taxpayers remain in place. Support for the package is resounding and the Government was returned after making clear its intentions to lease 49 per cent of the electricity networks to fund this once in a generation investment program. The projects that will be funded by the long term lease of these assets will improve our quality of life now, not years into the future. These infrastructure investments are important for sustaining 20 Grattan Institute, 2012, Putting the customer back in front, pages 9, 40 21 Frontier Economics, 2014, Regulatory arrangements for electricity network pricing: A report prepared for the NSW Department of Premier and Cabinet, pages 37, vi 22 Energy Users Association of Australia, A comparison of outcomes delivered by electricity transmission network service providers in the National Electricity Market 23 HoustonKemp, 2014, Electricity Networks Service Standards: An Overview: A Report for the NSW Department of Premier and Cabinet, page iv 15

productivity growth in our major centres and connecting our regional communities, as well as supporting future population growth. It will fundamentally improve our economy and the quality of life for ours and future generations. 16

Attachments: Attachment A B C D E F G H Title Ernst & Young, 2014, Electricity network services. Long-term trends in prices and costs HoustonKemp, 2014, Electricity Networks Service Standards: An Overview: A Report for the NSW Department of Premier and Cabinet Grattan Institute, 2012, Putting the customer back in front Frontier Economics, 2014, Regulatory arrangements for electricity network pricing: A report prepared for the NSW Department of Premier and Cabinet Economic Insights, 2014, Economic Benchmarking Assessment of Operating Expenditure for NSW and ACT Electricity Distribution Network Service Providers UnitingCare Australia, 2015, Network tariffs applicable to households in Australia: empirical evidence HoustonKemp, 2015, Economic Regulation of NSW Electricity Network Businesses Carbon and Energy Markets, 2012, A comparison of outcomes delivered by electricity transmission network service providers in the National Electricity Market: A report for the Energy Users Association of Australia 17