How Labor turned public energy woes into election gold with SEC plan

Ron Bernardi well recalls the gibes from his local barber about the fact he worked for the State Electricity Commission.

In the late 1970s, Bernardi had driven his EH Holden from the one-time coastal mining town of Wonthaggi to a new life in the Latrobe Valley and a job in the coal mine that fed the Hazelwood power station.

He was proud to be one of the many blue and white-collar SEC employees who provided an essential service to Victorians and to live in Morwell, where he felt so secure he always left his front door unlocked.

Ron Bernardi, former Hazelwood mine worker and SEC employee.Credit: Joe Armao

But he began to hear rumblings in the 1980s about featherbedding and growing debt at his once irreproachable, taxpayer-owned employer.

“The SEC kept all the local businesses alive, but not everyone recognised that. I would go to the barber and he’d rib me about working for ‘Slow, Easy and Comfortable’ and ‘Uncle Sec’,” Bernardi says.

When Jeff Kennett charged into government in 1992 full of neoliberal zeal to downsize government and outsource its functions, the monolithic, deeply indebted SEC was an obvious target. Over five years, the Coalition broke the commission into multiple generation, transmission and retail businesses, and sold them all off for tens of billions of dollars. Thousands of jobs were lost, businesses closed, and bustling Morwell and Moe were rendered towns where, as Bernardi puts it, “it felt like Sunday every day”.

“The barber soon went belly up,” he recalls. “Kennett left Latrobe Valley to rot on the vine.”

In exchange, the Coalition government promised that privatisation would pay off the state’s debts, boost the economy and, through competition and consumer choice, deliver Victorians cheaper, more efficient electricity.

Just 25 years later, Premier Daniel Andrews was able to point to the surprise promise of reviving the SEC as the killer blow in his thumping election victory in November. He framed the SEC plan as a bold but necessary move to keep the state’s lights on, given that national energy policy had failed to deliver an orderly transition to renewables.

The Loy Yang A power station in the Latrobe Valley.Credit: Joe Armao

But it was also a politically shrewd decision to break with decades of pro-market bipartisanship and to tap voter nostalgia about the SEC, deepening disquiet about privatisation and public longing for government-delivered services.

Old certainties

Andrews’ SEC announcement came in October, late in the election campaign. It was a pivotal moment much like his ‘out-of-the-back pocket’ promise in the 2018 campaign to build the $50 billion Suburban Rail Loop.

In language not heard from leaders of major parties for decades, Labor slammed its Liberal opponent’s “shameful” energy sell-off to “private multinationals”, evoking John Lennon’s “power to the people”. Andrews even promised to enshrine the SEC in the State’s constitution and vowed to provide almost 60,000 jobs, including 6000 apprentices and trainees: “Highly-qualified, highly-paid workers – working not for profit, but for people.”

Despite the small print explaining that the new SEC would be one of many players in the state’s energy market, for older Victorians in particular the promise summoned old certainties that Labor could argue had been shattered by their political opponents.

SEC Mark II will have an office in the Latrobe Valley, where a century earlier the original commission under founding chairman Sir John Monash had begun opening up a vast, accessible brown coal resource.

Through decades the SEC’s coal-fired power, transmission and retail network underpinned the state’s manufacturing economy and kept households and businesses in cheap, reliable power.

“The companies have paid the profits and dividends to their shareholders and are now coming back to the government with their hands out.”

Power industry expert Bruce Mountain

But when Kennett arrived in 1992, the commission was beset with problems - some of its own making, some of successive governments’ - including a costly, secretive deal to underwrite the operations of Alcoa’s aluminium plant in Portland with cheap power. It also made questionable investments in new power plants, poor productivity and big debt.

By 1997 the vast bulk of Victoria’s energy generation, transmission and retail was in private hands – part of one of the biggest privatisation programs in the Western world.

While the Coalition had a clear mandate to rein in public debt, it is questionable whether Victorians en masse supported the SEC sell-off. But as Alison Reeve, the Grattan Institute’s energy and climate program deputy director, puts it: “I’m not sure he [Kennett] cared.”

Confidential briefings to the early Kennett cabinet, obtained under Freedom of Information laws by Melbourne University academic James Murphy, include discussions of what “general or sectional support can be expected” for the privatisation plan.

“Wide support from business, finance and related sectors can be expected,” was the answer, leaving no doubt who the big winners would be. Less clear was how the Victorian public would fare, or respond.

Profits and costs

In a 2001 journal article, Kennett-era treasurer Alan Stockdale listed four broad objectives of privatisation: improving power station efficiency; lowering prices and “empowering” consumers; reducing government debt and transferring risk away from taxpayers; and boosting the state economy.
Stockdale claimed a “very positive” outcome for Victoria.

He estimated the privatisation program had yielded about $28 billion for the state, mostly from energy assets sales, and had saved about $1.2 billion a year in interest costs. He claimed Victoria’s privatisation model to be possibly “the best example of how to introduce a competitive market into the electricity and gas sector”.

Two decades later, as the sun sets on coal-fired power in Australia, the benefits are far less clear-cut, particularly for consumers.

Kennett acknowledges Victorians support the idea of government providing electricity, and voters’ attraction to the SEC, describing Labor’s policy as a “very smart political trick”: “Do people think government should provide essential services? The answer is probably yes.”

He says however that the state’s finances were so parlous in the 1990s that it could not afford to maintain deteriorating power stations and transmission lines. “Those [energy assets] sales gave us the opportunity to get Victoria on the move again.”

According to analysis by Bruce Mountain, the director of Victoria University’s energy policy centre, Victoria’s four brown coal generators privatised in the 1990s – Loy Yang A and B, Hazelwood and Yallourn – have collectively made profits of $23 billion (before paying tax and their financiers) on revenues of $62 billion since 1998. That is a profit margin of 38 per cent, an extraordinary shareholder return, especially given the government built the power plants and wore the initial risk.

Mountain says taxpayers would probably have been better off if the power stations had been kept in public hands. While government debt would have been higher for longer, the state would have had a stream of annual profits to reinvest in the network to help reduce power bills.

“You can argue these things in different ways, but … it is difficult to mount an argument to say, ‘hey, privatisation worked fantastically’ - and I haven’t really seen anyone do it in defence.”

As for individual consumers, they seem to have concluded that privatisation fell short of Kennett-era promises.

For about a decade after the sell-off, retail electricity prices tracked general price increases fairly closely. But from about early 2008, electricity prices spiked and began to outstrip inflation. In Melbourne, average retail prices have soared 285 per cent since 1990, compared to 127 per cent for general inflation over the same period.

That is similar to the price increases in other states, including Queensland, where electricity assets remain publicly owned. A number of factors are at play. The millennium drought leading into the Black Saturday bushfires of 2009 saw a slump in water available for hydroelectric and coal-fired power generation, while searingly hot weather added to demand, all of which pushed up prices. Soaring LNG gas exports added to local gas prices for generation nationally. More recently, Russia’s invasion of Ukraine, which triggered a global oil and gas supply shock, pushed prices higher still.

Mountain says another culprit, ironically, has been market concentration, which allowed energy companies to rake in large profits. He says consumers are now also being asked to foot the bill for the transition from coal to renewables.

“The companies have paid the profits and dividends to their shareholders and are now coming back to the government with their hands out saying ‘we want you to fund the transition policies’.

“Governments are saying ‘hang on, you guys have been making a motza out of these things, why have you not made preparations for the transition?’,” says Mountain.

But Tristan Edis, an analyst at Green Energy Markets, says privatisation in Victoria served consumers well until about 2015, by which time the market in Victoria was too concentrated, gas prices had spiked due to LNG exports, and the Abbott Coalition government had frustrated the replacement of coal-fired power plants by renewables. He says privatisation has provided more reliable power stations operating more often.

He also warns against romanticising the old SEC which, he says, unions had turned into “a kind of cosy sheltered workshop”. However he argues that the smaller SEC Mark II is unlikely to make the same mistakes because it will be operating in a competitive environment.

There is broad agreement that the objective of market competition leading to consumer “empowerment” and real choice has not been met.

Dennis Nelthorpe has been a leading figure in consumer law for decades, working with lower-income Victorians as they struggle to make sense of the electricity retail market. He says there is no clear benefit from competition between electricity retailers because they are selling the same, essential service: power.

“The idea that multiple retailers lead to lower prices is smoke and mirrors, by and large,” he says.

Yet if privatisation hasn’t been a raging success, or popular with Victorians, it’s taken the ALP a long time to officially recognise it.

Labor’s power conversion

Labor’s brand is historically associated with big government, unions and the public sector, just as the Liberals’ is with small government, business and privatisation. The reality, however, has not always been so simple. The SEC Mark I, for example, was founded by a conservative Nationalist government in 1921. And Paul Keating was Australia’s champion of free trade and competition policy.

Bringing back the SEC was a key plank in Daniel Andrews’ third consecutive election win.Credit: Jason South

While the SEC sale is synonymous with Kennett, Joan Kirner’s government was selling off 40 per cent of the Loy Yang B power station and slashing employee numbers when the Liberals took power in 1992.

David White, Labor’s state energy minister at the time, says it “made sense to get private investment into the SEC to improve productivity ... But total privatisation was always going to lead to massive price gouging, as we have seen.”

Since the 1990s, though, the political parties’ support for private ownership has largely been bipartisan. The Bracks and Brumby governments were renowned for using controversial Public-Private Partnerships (PPP) to finance, build and run infrastructure, such as the costly desalination plant at Wonthaggi.

Cabinet documents obtained by The Age in 2009 – when Andrews was health minister – show the Brumby government regarded energy privatisation as successful, giving Victoria “one of the most competitive electricity markets in the world”.

And the Andrews government has continued to privatise, leasing the Port of Melbourne for 30 years, selling off the land titles office and, as recently as 2022, part of VicRoads. Dominant toll road company Transurban has flourished under Labor, including through the government’s extension of its Kennett-era CityLink concession deal from now until 2044-45.

So why the change in position?

Behind the scenes, senior Labor figures have been talking about the government re-entering the energy sector for some years. Until 2022, it remained talk.

Reeve says the states are increasingly anxious about the early closure of coal-fired generators after the “mess” of national energy reform and failure to ensure a swift shift to renewables.

“All the states have their plan B because they just do not have trust in the national process anymore,” says Reeve. “You don’t want to be the minister when the lights go out.”

In an exclusive interview with The Age in December, Andrews acknowledged the SEC Mark II policy was about “keeping the lights on”. He says the idea finally crystallised in September, when AGL announced it was bringing forward closure of its Loy Yang A plant, which generates about one third of the state’s power, to 2035.

Andrews says his government could not rely on “dumb luck” that the private sector would step in to fill the supply void left behind. “This is not about being popular. It’s about doing what’s right.”

But the Premier’s view of what was “right” just happened to coincide perfectly with what Labor already knew voters wanted. By the time AGL made its announcement, Labor’s campaign researchers had identified the cost of living as a major issue – especially the cost of electricity. Internal Labor polling obtained by The Age shows electricity costs were a bigger concern than those of housing, taxes or food.

In focus groups in mid-2022, Labor’s campaign gurus tested support for government-owned energy. The strength and breadth of voter enthusiasm across differences of location, age, gender and class set the Labor camp aback. Country voters saw the potential of cheaper power, blue-collar workers in outer-suburban electorates were drawn to cheaper prices for households and businesses, while young, Green-leaning inner-city voters saw positives in climate action and public ownership as well as cheaper energy.

Later in the campaign, Labor pollsters asked voters which of the major parties’ key promises would best address cost-of-living concerns: the Liberals’ plan to cap public transport fares to $2 or Labor’s SEC revival plan? More than 60 per cent backed the SEC proposal, just 21 per cent favouring the Liberals’ $2 fares.

Reeve says that for older Victorians who remember it, the SEC evokes cheap electricity, secure work, personal service and confidence that someone is looking after life’s essentials.

“The SEC idea feels like going back to the simpler, good old days. The idea of the government stepping in to sort things out feels comfortable.”

White says people miss the SEC and feel they are being gouged on prices. “And they support the idea of the SEC coming back and introducing renewables.”

Crucial to Labor’s decision to break ranks on privatisation was the impact of the pandemic. In fact, Reeve says both sides of politics are responding to a “broader trend” out of COVID where “people decided that, ‘actually, we like governments doing stuff. We like services’.” The Liberals’ $2 fares are another response to that sentiment.

The massive government debt clocked up through the pandemic by the Coalition federal government, and by the states, has also neutralised the argument that debt is bad. Labor in Victoria romped home at the November election with debt of $166 billion forecast for 2025-26, much higher than the state’s debt in the early 1990s.

Over many years veteran campaign strategist John Utting has researched public attitudes to privatisation for Labor as well as for large private energy and infrastructure interests. “There was never strong public support for electricity privatisation and any support has weakened,” he says, pointing to a “perfect storm” of escalating prices, big energy companies price-gouging, frustration with retail offers, and COVID.

The Stockyard Hill wind farm near Ballarat is part of the government’s plans to transition Victoria to renewable energy sources.Credit: Goldwind Australia

Andrews is not the only politician sniffing the political breeze. As NSW voters prepare to go to the polls in March, Labor leader Chris Minns has followed Andrews by promising a new publicly owned, clean energy company.

Back in the valley

Yet in the one place we might expect to find jubilation at the return of the “slow, easy and comfortable”, the response has been underwhelming.

At the November election, Labor suffered a 6.8 per cent swing against it in the seat of Morwell, which was won by the Nationals. This, despite Labor-voting Moe being moved into the seat in an electoral redistribution and Morwell having been declared notionally Labor.

Whatever other Victorians saw in Labor’s SEC promise, voters in the valley weren’t buying it.

Since privatisation, governments and mining and energy companies have proposed a string of grand but unrealised job-generating schemes about “smarter” ways of using coal, and clean energy, that have left locals weary and wary.

“It seems Dan woke up one morning and had an epiphany,” says Bernardi, who continued working at Hazelwood after privatisation until the plant closed in 2017. “Why didn’t Labor do this before? They’ve had plenty of time.”

Bernardi says he is “sceptical” about the new SEC because of the lack of detail and because it appears to be a plan for the government to be just another player in a privatised market.

“The whole point of the SEC was to generate our electricity and transmit it and sell it. If it doesn’t do these things, it’s not the SEC.”

Tomorrow: What really is the government’s plan for the SEC?