Auckland's Power Debacle:

Why Mercury Energy should not take all the Blame

Keith Rankin, 23 February 1998.


From the evening of 20 February, Auckland's central city has been virtually an electricity-free zone, following the break in the fourth and final supply cable to the central business district (CBD). The semi-privatised supply utility - Mercury Energy - is copping all the blame. I believe, however, that we need to look at the bigger picture.

Certainly the commercialisation and partial privatisation of public utilities is a part of the problem. There is no reason to believe that Mercury Energy has done anything worse than the utility sector as a whole. Hopefully, this power fiasco will put an end to the pressure from Wellington to privatise the Auckland Regional Services Trust; a plan that involves a multi-thousand dollar share giveaway to every Auckland ratepayer.

The core of the current problem relates to the ongoing impact of the economic "Reforms" that commenced in 1984. Part of that problem relates to the culture of 'financial responsibility' - a culture embodied in the 1994 Fiscal Responsibility Act - where responsibility is equated to not spending money. The culture pervades the whole of public and private life; the virtues of private savings and public surpluses have been conspicuously promoted. Public surpluses are seen as means to tax cuts and not to any future commitment to spending on the social or physical infrastructure of the nation.

With respect to public utilities, we have seen the culture of financial responsibility transform itself a culture of cost-cutting, redundancies, buck-passing, and risk-taking rather than planning for contingencies which are much more likely not to happen than to happen. Last year we had to swallow the reality that cost-cutting in the Fire Service means that they can no longer be relied upon to do anything other than attend fires. In the Sunday Star-Times (22 February 1998) we were treated to the headline "Curbs on DNA tests; tight budgets force police to cut spending". A few days earlier, our SAS military force couldn't get out of the country (en route to the Middle East) because their old transport aircraft broke down on the runway at Whenuapai.

Another part of the problem is that public utilities are constituted to "defend their patch", even if it means legal disputes with other utilities. The bigger picture, where the coordination of infrastructure is of paramount importance to the public, is often lost on the utilities themselves. That is a part of the culture of devolving accountability; a culture emanating from a central government always happy to stand aside in a crisis. Thus, Mercury Energy found itself unable to fix the known problems associated with the older cables that transmitted power to the CBD, thanks to Transit New Zealand, the national roading utility, which used the Resource Management Act to block Mercury's plans.

The most important cause of the problem is the regional imbalance in New Zealand's growth; an imbalance that is seeing Auckland grow at the expense of the rest of New Zealand. This unbalanced growth is in particular a result of a set of high real interest rate, high exchange rate and pro foreign investment policies that sacrifice the tradeable sectors while simultaneously sucking money into the country. The money must go somewhere; most of it went to Auckland, the home of the financial and business services sector. Thus Auckland has grown rapidly over the last five years, with barely any growth of infrastructure to match.

The electricity supply problem is simply another chapter in the problems of water shortages, grossly overstretched schools, public hospitals, inadequate public transport, and rush hour gridlock on Auckland's roads. The latter includes the appalling bottleneck on the main highway north, from Albany to Waiwera. The government's only obvious policy on infrastructure is to close facilities (or to force their closure through an inflexible population-based funding regime) in regions that are losing population.

In a healthy functioning market economy, economic activity is attracted to regions where the potential standard of living is high but the cost of living is relatively low, and where there are unemployed workers. The maintenance of infrastructure in such regions is critical. In the absence of regional infrastructure, firms will instead prefer to locate in the largest most rapidly growing population centre (the largest market) despite high costs (which they hope to externalise).

Firms locating in Auckland hope that the pressures of growth will lead to eventual improvements in public infrastructure. Given the cultures of fiscal responsibility and the commodification of essential supplies - all integral components of "structural reform" - such infrastructural improvements will always lag the city's growth. Auckland is low less a mini-Sydney and more a mini-Buenos Aires. New Zealand is starting to display the regional imbalances characteristic of South American countries.

Auckland's problem is New Zealand's problem. An essential part of the solution is some planning in Wellington, leading to policies that favour regionally balanced growth. A second part of the solution is to develop a new quite different fiscal contract, and hence a new culture of what it means to be financially responsible. A new fiscal contract should see fiscal responsibility as being associated with higher taxes and more social wage spending; social investment spending on infrastructure, on families, on conservation of the environment and the maintenance of existing infrastructure. A programme of social investment expenditure has the added socially and fiscally responsible advantage of creating full employment.

I am an owner of Mercury Energy. While I neither live nor work in Auckland's central city area, I am nevertheless inconvenienced by the shutdown of the city. I don't want to have to pay twice, by having to share in the payment of compensation to central city businesses; compensation that will arise if Mercury Energy is forced to become the sacrificial lamb. And I don't want to pay a third time, by having to suffer future problems caused by irresponsible public policies emanating from Wellington. I want this country to grow in a sustainable regionally balanced way, overseen by a government that accepts ultimate responsibility for public infrastructure, and that accepts that the unbalanced growth of Auckland will only be reversed by a new approach to the economic management of the nation.


© 1998

Rankin File | 1998 titles