The Northern Territory’s Government-owned power generator is broke and will push for an increase in power prices once a freeze expires in six months, but the Government insists prices won’t rise above CPI.
In what the Country Liberals Party opposition called “a Christmas present no-one wants”, the NT Government has announced it replaced the board of Territory Generation, appointed an interim board, as it released a heavily-redacted and damning report on the ailing utilities corporation.
The new report has found at least $43 million in budget blowouts caused by soaring fees, bloated staffing levels, and over-spending on projects.
The Government-owned Power and Water Corporation was split in 2014 into three corporations: Power and Water, Territory Generation, and retail branch Jacana Energy.
Treasurer and Acting Chief Minister Nicole Manison said the financial woes of Territory Generation were a result of the split.
“Since coming to Government we’ve had some concerns about the financial sustainability of Territory Generation, there is no doubt that there are some real challenges out there,” she said.
“When you turn one thing into three, you then replicate senior management three times, for example, systems three times.”
‘Immediate cash injection’ of $20m needed from Government
The review of Territory Generation’s financial performance agreed with Ms Manison’s assessment: “Territory Generation has experienced a significant deterioration in its financial performance since its establishment as a stand-alone business,” it said.
“To date, T-Gen has not made any meaningful savings in its cost base or staffing levels, despite past … forecasts that this would have already occurred.”
The NT Government had to approve an unplanned $20 million loan in the last financial year to help fund capital projects, and doubled Territory Generation’s overdraft facility from $10 million to $20 million.
Despite doing this, it will still not be enough to pay costs this year “if corrective action is not taken”, the report said.
Territory Generation budgeted for $38.3 million in capital works, which has already blown out by $20 million, to a current forecast of $58.3 million in work that Territory Generation does not have the financial resources to complete this year, the report said.
“A lack of visibility and predictability makes capital financing decisions extremely difficult,” the report found.
Territory Generation can only complete current works if the Government props it up even further, which is not consistent with the Government Owned Corporations Act, the report stated.
Ms Manison said the Government would need to make an “immediate cash injection” of about $20 million to keep Territory Generation afloat.
T-Gen to push for power price increases
Territory Generation has identified a cost reduction strategy, “although the information presented to the shareholding Minister does not identify cost reduction targets or timelines and so it is unclear the extent to which this will contribute to the resolution of the critical cashflow issues,” the report said.
As a result, the corporation will push to increase power prices once the current freeze ends on July 1, 2018.
However, the Labor Government committed to not increasing power prices in its first term, which runs until August 2020.
“T-Gen has flagged its intention to pursue an increase in tariffs to recover its costs … increasing tariffs will accelerate the competitive threat,” the report said.
“Any tariff increase will either have to be borne by consumers or the Government … the latter would be an effective back-door subsidy to T-Gen.”
Ms Manison said the Labor Government had promised the public that utilities prices would not rise by more than CPI.
“We don’t ever want to see the massive price shock we saw under the CLP when they put up power prices 30 per cent and water prices by 40 per cent overnight,” she said.
She said there were already significant subsidies to Territory Generation, but would not directly answer when asked if further subsidies would be needed to keep power prices down.
Ms Manison only said the Government was looking into all three utilities corporations to keep prices steady.
“We all want to know that we’ve got reliable power that is affordable and meets the future needs of the Territorians,” she said.
Government pivoting to 50 per cent renewables
“It was always going to be very difficult to ensure it was financially sustainable, especially when we have such a changing world of technology when it comes to renewable energy,” Ms Manison said.
“There’s a big body of work the Government is doing to look at the structure of government-owned corporations and how that fits into our pathway to renewables and what that market looks like.”
The report said that Territory Generation faced “an extremely difficult external operating environment, with actual and potential market competition” which would worsen with the shift to 50 per cent renewable energy.
“The market model is not yet developed that would fund T-Gen to provide the necessary reserve capacity/ancillary services that a 50 per cent renewables market would require,” it said.
It also said Territory Generation’s business model would not survive the transition.
“T-Gen either has to become a significant participant in the provision of renewables or become a base-load and capacity provider with a much smaller footprint.”
Ms Mansion said the Government was still trying to understand what Territory Generation’s future held.
“For example, is Territory Generation in the future a real competitor in the market, or is Territory Generation ultimately the corporation that provides system security to everybody?
“That’s about reliability … to keep the system secure and the energy flowing.”
‘This Government doesn’t know whether it’s Scrooge or Santa’
NT Chamber of Commerce acting CEO Brian O’Gallagher said he was very concerned by the announcement.
“We would hope the Treasurer would stick to her word,” he said of the commitment to not increase prices over and above CPI.
He said the fact that so much of the report was redacted made it “very hard to trust”, and that uncertainty about the future of Territory Generation had shaken business owners’ confidence.
A survey the chamber had conducted showed that four out of five members believed 2018 would be worse for business than this year, Mr O’Gallagher said.
“One of the growth industries in the Territory at the moment is the liquidation of local businesses,” he said.
“The Government definitely needs to control its own costs, and we’ve been saying for a long time they’ve got a bourgeoning executive level, which is costing a lot, they need to trim it up.
“But they should not be imposing costs on local business who employ a lot of people.”
Opposition Leader Gary Higgins said the report had done nothing to ease concerns about cost of living pressures.
“Whether it’s an increase on their power bill or an increase to the subsidies funded by the public purse, either way in the long run Territorians will foot the bill,” he said in a statement.
“The Labor Government has not been open nor transparent about this, and the timing of today’s announcement says a lot.”