Russell Brown's HARD NEWS

27th February 1998

Copyright © 1998 Russell Brown

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remember the old joke about mushrooms? Well, who else feels like they've been kept in the dark and fed bovine animal excrement? The engine of New Zealand's economy has been shut down; 60,000 people can't go to their jobs in the CBD and about 6000 can't even find the toilet in their inner-city pads. And when they do, as Bob Dylan put it, the pump don't work 'cause the vandals stole the handle.

Yes, we'd been muttering about third world power supplies for a week or two by the time the fourth of Mercury Energy's [] major cables failed, cutting off almost all electricity to the centre of Auckland. We didn't know how much worse it could get. Me, I've had a pretty good crisis - I wasborn to telecommute anyway - but I'm one of the lucky ones.

So, how did it happen that Mercury's cables, all of which had failed before, went down? Some people say they saw it coming 10 years ago; some people say it's something to do with the fact the Mercury Energy has halved its workforce since it was created out of the Auckland Electric Power Board in 1992, some people say it was simply very bad luck indeed.

What and how much we find out about it will likely be determined by the terms of reference the government sets for an official inquiry. On this basis, I am not terribly confident that the truth will out.

One thing which has become clear is that Mercury was and is a very weird outfit. Although it is owned by a consumer trust which represents its customers, it is not accountable to its owners. The trust can only nominate four of the nine directors on the Mercury Board - the rest are picked as part of a kind of private club by the existing directors and rubber-stamped by the wealthy law firm Russell McVeagh, to whom those directors send most of Mercury's legal work.

This shambles was identified as the core issue by James Gardiner, the Herald's energy reporter, who, as the biggest story ever likely to happen on his round unfolded, really set the agenda. He's due next year's year's Qantas for coverage of a breaking story, I reckon.

After he'd done the digging, of course it was then time for the experts to pile in and tell everyone what was going on. I am already tiring of being lectured by my economic betters about how this is really nothing to do with the market. "Left wing factions" sniped Fran O'Sullivan in a dull, rambling treatise in the Herald, should know that Mercury's debacle was "an example of the failure to apply private sector ownership principles".

The politicians and the industry interests liked the way that sounded too. Mercury's ownership structure made it a "bodgie operation" said Maurice Williamson. The big difference between us and Mercury is their "ownership issues" said the man from the US-owned Utilicorp.

Yet none of them, so far as I am aware, has been able to say exactly what Mercury might have done differently had its disregard for its public owners been made official. Mercury did what private companies do - maximised profits, jacked up prices as far as the captive market would stand and took a risk or two.

The five directors were busting a gut to float a quarter of the company on the sharemarket, and, of course, they spent more than $300 million trying to take over Power New Zealand. Whatever your view of public utilities, you have to concede that these are *not* things that the Auckland Electric Power Board would have done.

There wasn't, frankly, much of a public service culture at Mercury. On the Saturday, after the last cable had failed, Mercury held an emergency meeting with interested parties. Yet not only was no one from the elected consumers' trust told of the meeting, neither were any of the four board members who were accountable to the trust. This is not evidence of an organisation which cared much at all for the public.

There doesn't seem to be much good to say about the Mercury Consumer Trust itself, either. The only member of it who appears to have a brain is Victoria Carter, an independent elected last year, breaking the Citizens and Ratepayers monopoly which had existed since Suzanne Corbett resigned in disgust. Yes, once again, CitRats have been caught asleep at the wheel in Auckland. Why on earth do people keep on voting for them?

Worst of all on the trust was Michael Barnett, who resigned as deputy chairman of the Mercury Board when it became obvious that there was an enormous conflict of interest with his other gig, as chairman of the Auckland Chamber of Commerce. Just what does this man actually do and what does he get paid to do it? He apparently had thoughts of running for mayor.

I don't think so.

Moving on, where were all these experts when Mercury's unusual ownership structure was devised? Did Fran O'Sullivan blow the whistle?


Did Maurice Williamson emit even a squeak as his Cabinet colleague and former Minister of Energy John Luxton examined and approved the structure?

Of course not.

Max Bradford claimed in Parliament this week that Luxton could not have challenged the "bodgie" deal because it was the will of Aucklanders. Bollocks it was. There were angry public meetings in 1992, there was a High Court challenge and there was so much noise from John Collinge that he was rolled by the other directors. I think Collinge at that point was still president of the National Party.

Indeed, I'm sure Luxton - and all the other people who know what's good for us - approved the arrangement because it specifically prevented the public asset from being controlled by publicly elected officials. That was the whole idea.

Luxton has been desperately trying to wriggle out from under this one - even, somewhat fantastically, blaming Pam Corkery for the mess. But it strikes me that too much may already have been said. Two members of Cabinet have quite clearly attributed the blame to a company structure signed off by one of their comrades. Are we getting a little closer to a source of compensation here, folks?

It does make more sense for Auckland businesses to seek compensation from the government or the minister concerned than it does to get a payout from Mercury which will go straight onto our power bills. We'd all still pay for a government settlement but at least it'd be spread a bit further.

This all comes, ironically, as the government desperately tries to find an idea it can sell to Auckland local bodies over the disposal of the Auckland Regional Services Trust assets. Honest Mo's Share Giveaway Bonanza idea has approximately zero support out here in the real world, and the search for a Plan B looks a bit like Mercury all over again.

Thing is, why dispose of the assets after all? It's certainly not the will of the people - even though Williamson still won't release the public submissions on the issue, the ARC has confirmed that they were overwhelmingly in favour of keeping the ARST assets in public ownership. Apart from ideology, the only sensible reason I can think for selling part of the assets is to raise a bit of cash for infrastructure development - float a third of Ports of Auckland, perhaps.

But, of course, what would I know? You and I are too stupid to appreciate that when our power bills seem to almost double - at the same time, incidentally, as wholesale electricity prices have fallen 15% by dint of direct government intervention - that good and exciting things are happening.

As an Auckland electricity consumer, I can't think of one material benefit I have derived from the existence of Mercury Energy. Quite the reverse, actually. Maybe the crisis would have happened under the old AEPB anyway - but at least we wouldn't have been paying a premium in the interim so that these people could pull huge salaries, spend lots on branding and glossy literature and spend hundreds of millions of dollars trying to take over other companies.

So as deregulation grinds on into its second decade and the government still can't get it right, there's more in the pipeline. Two things are happening. One, ECNZ is going to be further split - which is the wrong answer to a stupid question. Demolishing the value of a public asset in the hope that a beneficial market in generation will finally emerge is a very risky strategy indeed. Two, the government is going to do to electricity what it didn't have the guts to do in telecommunications. The suppply and line business are going to be separated.

It would have been a wonderful thing had Telecom been relieved of its monopoly on the national access network, but I don't think we'll see anything like the same benefits from electricity. The consumption of electricity isn't spiralling, it's not being put to radically new uses, technology won't create huge drops in the cost of providing it and, most importantly, there's bugger-all product differentiation to be had.

The only new electricity "product" I can think of would be "clean" power for business running computers, who currently pay for expensive devices to clean their own power. There will be some potential to deliver data over electricity wires, but that's a side issue. Bradford has promised us boxes which will let us choose our power supply company but we've been told before that our power bills would fall, and look what really happened.

Worst of all, according to Jeff Williams, CEO of Trustpower in Tauranga, the government's plans to open up the retail market to the new generators it's going to create out of ECNZ will be a disaster for consumers. The big guys will pick off the biggest and best customers and the existing retail companies will have to fund their big salaries entirely out of the consumer market - meaning even higher prices.

It'll be interesting to see how much of this washes back on the determinedly dry Shipley administration. Jenny certainly won a lot of admiration for her attendance and her wise words at the Hero Parade [] last weekend. It really does feel like things are changing for the better when the PM turns up and has a good time in the rain. She told a friend of mine that she could hardly do otherwise, given that she'd surrounded herself with quite a few gay staff.

Let's not forget also that Helen Clark, Sandra Lee, Judith Tiazrd, Joe Hawke and Clem Simich turned up to join the fun. Clem Simich! On ya, Clem!

I'm given by several sources to understand that the Ship regards Mills and his council cronies as a bunch of morons. Phil Raffils even wrote her a letter begging her not cave into the forces of darkness and revealed himself to be even more stupid than anyone had previously suspected.

On that score, it seems we're suddenly encountering a whole new class of victims - the bigots. According to Brian Edwards and others, people who have "reservations" about "gay culture" and the "gay lifestyle" shouldn't be called names. The poor things. Edwards, who is a nice man and a good broadcaster, suffers from the classic baby-boomer media-man affliction of believing the world revolves around him. It's not about you, Brian.

Look, Les Mills and David Hay didn't have "reservations" about Hero - it was nothing so passive as that. What they did was deliberately stack a council committee meeting in order to reverse the advice of the council's own officials to provide the basic services they'd extend to any other gathering of this size. Some victims.

And for so long as Phil Raffils, the principal of Avondale College, tells gay teenagers that they are sick and should be "cured" I don't think any insult is too harsh. Remember when the Herald under Peter Scherer wouldn't report on Hero? Remember when he wouldn't allow the words "gay" or "lesbian" in his newspaper? It's not that long ago.

One day, quite soon I hope, we'll be saying "remember when the morons on the council wouldn't get behind Hero?". I know which side I want to be on. So ... who's going to get Bill Ralston to stand for the mayoralty?


    ==  ==      Russell Brown
  [ @ / @  ]                      
     /        ________________________________________
    (_)         "The views expressed on this programme
    ____)       are bloody good ones." Fred Dagg, 197?

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