27 April 2012

Turning a collective good into a private benefit: Caritas opposes partial privatisation of state power companies

Caritas Director Julianne Hickey spoke to the Finance and Expenditure Select Committee this week about the Mixed Ownership Model Bill. If passed, this Bill will allow the partial sale of the four state owned power companies. Caritas told the Committee that the legislation will lead to greater inequalities and, in the current regulatory environment, may not lead to sufficient protection for poor and vulnerable consumers.

The full text of the oral submission follows:

Caritas has reflected on the question of the partial privatization of State owned power companies in the light of Catholic social teaching on the common good, the protection of the poor and vulnerable members of society, the protection of the environment, and the principle of the universal destination of created goods.

Catholic social teaching contains cautions both for people seeking to privatise and people seeking to nationalise industries and services which provide essential goods. It recognises both the value of the market and the limits to the market.

We have drawn on experience by New Zealand Catholic groups with low-income power consumers who have had difficulty even under current arrangements with obtaining or maintaining power accounts. We also have recent experience of the privatisation of state assets, where private owners failed to invest in basic maintenance, forcing the government to buy them back rather than allow services to fail. We have also considered the urgency of the environmental challenges facing us, and question whether the Mixed Ownership Model provides the best incentives and encouragement for power companies and consumers to make changes in their energy production and use.

A significant lens through which a Catholic viewpoint considers this and any public policy proposal is how it will impact on the poorest members of society. Will it increase or reduce inequalities in our society. Despite the promises that shares will be available to ‘mum and dad’ investors, the reality is that only the wealthier members of society are going to be in a position to buy shares. People who are currently struggling to pay their power bills, not to mention accommodation, food and transport costs, do not have spare change for buying these shares. Privatisation of state assets turns a collective good into a private benefit, and this increases the gap between the rich and the poor – those who have more, obtain even more, while those who have less, own even less.

We have real concerns about the lack of protection for consumers. The Regulatory Impact Statement for this Bill says the Government needs to be satisfied that regulations adequately protect consumers. This is insufficient. The Government has a responsibility to ensure that consumers are adequately protected. This means protection now and in the future; both in terms of certainty of supply and for long-term sustainable infrastructure. It means ensuring fair price setting; it means ensuring that people have the right to warmth and light.

Compared to the United Kingdom, where the Office of Gas and Electricity Markets, or Ofgem as it is called, has a central role in oversight and protection of consumers, the New Zealand Electricity Authority has a much narrower role. For example, consumer protection issues in the electricity industry which were previously carried out by the Electricity Commission have now been delegated to Consumer Affairs. This has a much smaller role in considering the best interests of power consumers than an electricity regulator with the oversight of the end-to-end market with clear authority and the ability to safeguard consumers. For example, Mrs 74-year-old-pensioner may be able to approach the current Electricity complaints ombudsman with a complaint concerning a specific transaction, but is unable to ask them to consider whether the price charged for power is fair and reasonable. The UK equivalent can and does look at such matters.

New Zealand has very fragmented oversight of the behaviour and responsibilities of power companies, with different functions shared between a number of government departments and agencies. There is no overarching policy and body that ensures good economic, social and environmental outcomes. In the United Kingdom, Ofgem has specific responsibility for people who suffer from fuel-poverty. Where is that discussion in this debate? In the United Kingdom, Ofgem oversees power supply to vulnerable consumer groups, such as low-income people and rural residents. Who will have that oversight here?

Caritas believes there may be greater inequality as a result of this legislation. Without greater clarity about regulatory oversight, Caritas does not favour the partial privatisation of the four State owned power companies. Our Catholic tradition recognises both state ownership and the right to private property. However, what we must take into account in assessing this legislation is how our arrangements affect the common good, which is the good of all of us, what we all need to live a truly human life as members of a human family. New Zealand does not have the regulatory environment to ensure the protection of the most vulnerable today and in the future, so partial privatisation may not help us to achieve the common good.

Both the written and oral submissions by Caritas to the Select Committee is available here.

Caritas Aotearoa New Zealand is a member of Caritas Internationalis, a confederation of 165 Catholic aid, development and social justice agencies active in over 200 countries and territories.

ENDS

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