02/11/2011 - 11:19

Time bomb lurks underground

02/11/2011 - 11:19

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An ERA report into the state’s underground power program has opened a can of worms the premier would rather not deal with right now.

LITTLE did the state government know what it was letting itself in for when it asked the Economic Regulation Authority to inquire into the cost benefits of the State Underground Power Program.

The program was launched 16 years ago in the first term of Richard Court’s government. The energy minister who oversaw its introduction was none other than Colin Barnett, the current premier.

By all accounts it has been a great success. Half the $280 million invested in the program has come from taxpayers via the Office of Energy and Western Power, and 76,000 customers have been the beneficiaries of power lines in their suburbs being placed underground.

The program had two goals. The first was to get rid of unsightly power lines in the older suburbs; the second to eliminate the risk of power being disrupted in storms when uprooted trees fell across the lines. That always caused huge inconvenience to households, let alone the risks for maintenance workers who braved the elements to restore services.

When Lyndon Rowe’s ERA delivered its recent report, however, it did more than conclude the program had provided ‘overall positive benefit’. It included plenty of hooks, which, if introduced without modifications, could generate a significant political backlash.

According to the treasurer, Christian Porter, who initiated the inquiry: “A large proportion of the benefits of the program have been accrued to the owners of the properties in suburbs where underground power has been installed, as reflected in increased property values. Overall, property owners have benefitted more from the (program) than they have paid for it.”

Taxpayers at large have gained as well, although not as much because they “have subsidised the cost of the program to the property owners”.

Western Power has been a winner too, through lower maintenance costs.

Overall, on a cost-benefit analysis, the power utility has roughly broken even.

So far so good, and the merits of the program Mr Barnett started are obvious. But the ERA’s suggested change to the funding of the program contains some potential traps, especially for politicians.

At present, each of Western Power and the state government provide 25 per cent of the costs, with the rest from the relevant local authority, which generally passes it on to ratepayers. This means homeowners usually pay roughly $3,500-$4,500 per property, with the power utility and the government splitting the rest.

The ERA says this formula should be reworked in line with the benefits each group is estimated to receive from the program.

Mr Porter says it is the ERA’s view that the subsidy from taxpayers under the program has been to the advantage of property owners in wealthy suburbs compared with less affluent areas.

“The authority’s view is that this is inequitable and the subsidy to suburbs with higher property values does not represent an efficient use of taxpayer funds, because the ratepayers in these suburbs may have paid for their entire share of the costs of undergrounding,” Mr Porter said.

“Further, it is likely that more (program) projects could have been provided for the same amount of funding from public funds.”

The ERA suggests areas for future projects are divided into four categories based on the median house price and income. The government, through the Office of Energy, could pay up to 40 per cent of the cost in areas where the median house price is below the Perth average. This could be reduced on a sliding scale to just 5 per cent in the ‘highest value’ suburbs.

Now, while that’s a very good idea, there are potential problems – political problems.

For example, few voters like any government removing a benefit for which they have been eligible. In this case the ERA’s recommendation to reduce the taxpayers’ contribution to residents in the wealthier suburbs has merit. And a Labor government might be inclined to grasp the idea with some enthusiasm, although opposition energy spokeswoman, Kate Doust, has been critical, saying only affluent areas would be able to afford the scheme. 

That would be inequitable.

But the wealthy suburbs are, in the main, the Liberal suburbs. The last thing they would expect is for a Liberal premier – let alone the person who introduced the plan – to remove virtually the full benefit, despite their expected overall gain in property values.

In July, Mr Barnett was quick to knock on the head an ERA proposition that homeowners pay almost double –or about 90 per cent – to retrospectively bury the lines in an attempt to better reflect the economic benefits they derive. He said property owners would not be required to pay significantly more.

“I don’t think so, certainly not 90 per cent of the cost,” Mr Barnett said at the time, adding “we’ll probably simplify some of the rules, we’ll certainly maintain the funding.”  

Energy Minister Peter Collier was guarded in his reaction to the recent report, although he did say a suggestion that householders meet 80 per cent of the cost was still a bit high.

But he flagged some changes because he had been badgered by MPs from well-heeled suburbs who, on behalf of their constituents, had been saying: ‘We want it (underground power), and we will pay for it.’

Mr Collier added: “We must be careful that all the resources under the program don’t get allocated to the more wealthy suburbs, with others missing out.”  

Even with this approach there is a political risk. Plenty of residents in the so-called wealthy suburbs are asset rich and cash poor. They watch their pennies and, while probably Liberal voters, would be far from happy if they were told to come up with almost $8,000 in cash for the project, despite an assurance the value of their property would jump.

The more astute among them would almost certainly point to the current state of house prices and note there are no guarantees values will jump in these uncertain times.

What is clear is that if the scheme is to change, it won’t happen overnight. The government is waiting for a second report, this time from the Office of Energy, which is assessing the merits of the system, and whether it is equitable and provides effective results.

That report is due at the end of the year. The two reports will then be assessed, and the impact of possible modifications analysed. Mr Collier was guarded on whether a decision would be made as part of the next budget process, noting that work under the existing program will continue until at least mid next year.

All the signs are that whatever changes are made to this popular program will be relatively minor. The last thing Mr Barnett wants in 2012 – a pre-election year – is to create a controversy, especially among many of his traditional supporters, no matter what the ERA might recommend.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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