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State of decline -

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State of decline

Reporter: Tim Lester

KERRY O'BRIEN: Power failures, train delays, water shortages - recently some of Australia's most
vital infrastructure have shown worrying signs of stress.

Various State reports have built a picture of governments running down long-term assets to improve
budget bottom lines year by year, in some cases a picture of critical decay.

With electricity, there's a sense that sooner or later, we'll pay for the shortfall with a surge in
blackouts.

The power equation is made even tougher by our love growing affair with the air-conditioner.

Business and economics editor Tim Lester looks at whether the various State systems are investing
enough to keep up with Australia's power demand long-term.

TIM LESTER: For Simon Jones, it was infuriating.

For his gourmet food and meat business in Brisbane it was damaging then, and remains deeply
threatening now.

Early this year a power failure shut down his five cold rooms in suburban Chapel Hill and crippled
his cash register.

He was, in every sense, powerless.

SIMON JONES, BRISBANE BUTCHER: The main disappointment was, um, the false information from Energex
which said, "we'll get it back in two hours", which never eventuated.

If we had have known that we could have basically moved a lot of our stock to another cold room we
have at Ascot.

TIM LESTER: 23 hours later and Simon Jones was left with $16,000 of stock destroyed, $20,000 in
business lost.

SIMON JONES: You're basically losing money.

You know, you might be losing all the money you've made in the past month or something like that.

PETER DOBNEY, ENERGY USERS ASSOCIATION: It doesn't alarm until you're hit by it.

TIM LESTER: Power failure is a nagging, often cruel risk, for countless businesses across
Australia.

PETER DOBNEY: And all of a sudden they've got these mounting costs and they're not meeting their
production targets and they're in trouble.

LES HOSKING, NATIONAL ELECTRICITY MARKET MANAGEMENT CO: People are expecting that the lights will
always be on.

And they should modify that expectation.

TIM LESTER: The national electricity market manager, Nemco, says in effect, we're spoilt.

Three quarters of all blackouts are unstoppable - wild storms or maybe an unlucky possum.

LES HOSKING: You cannot expect that the electricity will stay on during a massive storm over an
electricity network.

It will go out.

TIM LESTER: But might the preventable blackouts be just beginning to grow to a far more damaging
level?

Watching the news of late you'd have to wonder.

ABC REPORTER, AUGUST 14: For the first time in the operation of the national grid four States were
affected.

TIM LESTER: Mid-August blacks out a quarter of a million homes, most in Queensland.

STEPHEN ROBERTSON, QUEENSLAND ENERGY MINISTER: This is a problem not caused by Queensland.

TIM LESTER: The peak engineer's lobby group pours scorn on the Sunshine State's distribution
infrastructure.

PETER JORSS, QUEENSLAND PRESIDENT, ENGINEERS AUSTRALIA: By the year 2015 we're well and truly up
the creek if we adopt the 'do nothing' approach.

TIM LESTER: The New South Wales Auditor-General points to a similar problem.

The State enterprises running electricity and water will need to earn billions just to maintain
services.

BOB SENDT, NSW AUDITOR-GENERAL: They won't have the revenue stream in future years to pay for
replacement that's from their own source.

TIM LESTER: As in Queensland, the New South Wales Government says it's OK.

NSW MINISTER: There has never been this level of investment.

Never been this level of investment.

TIM LESTER: Memories of Perth's supply crisis last February shape as an election issue in the West
and one prominent power consultant says that if the summer is long and hot, South Australia and
Victoria will almost certainly suffer shortages.

ROB BOOTH, ENERGY CONSULTANT: I think it's not yet at a crisis point to them but it is rapidly
getting to that stage.

Unless something is done we'll certainly have a crisis in a year or two.

TIM LESTER: Rob Booth is one voice accusing state governments of skimping on power system
maintenance and development.

ROB BOOTH: It's particularly bad in Queensland.

TIM LESTER: Another is Peter Dobney.

PETER DOBNEY: It doesn't seem to me like there's been good planning out there in the past.

TIM LESTER: He's chairman of the lobby group for big business power users.

PETER DOBNEY: A lot of our infrastructure was put in 30, 40, 50 years ago that's now coming to the
end of its life.

There will be a big investment cycle.

You have to ask yourself why is it just happening now?

ROB BOOTH: The state governments also deny it but in my view the pressure to take out dividend and
the rate at which the state governments have been taking dividends out of the state-owned companies
is one of the reasons for the problem.

TIM LESTER: In Queensland and New South Wales the State still owns the system.

ROB BOOTH: A normal private company might pay 60 per cent, 70 per cent of its after-tax profits by
way of dividend, but the governments have been taking over 100 per cent year after year.

TIM LESTER: As the northern states rush to invest billions and catch up in distribution you might
expect some southern smugness - this is where Victoria and South Australia can point to private
power models and say, "told you so".

It's better to have government out of the power picture.

Well, some are saying that and others are not.

MICHAEL PORTER, ENERGY ADVISOR: New South Wales really should do what Victoria did except they did
it a bit late and get with it and similarly in Queensland.

TIM LESTER: Michael Porter was a key figure in advising the Kennett Government on its power
privatisation and he's now advising South-East Asian governments to adopt the Melbourne model.

MICHAEL PORTER: What we've seen in Victoria is the private can do power generation.

It can do it competitively, it can do transmission and it can distribute.

TIM LESTER: Does it invest long-term to ensure supply?

JOHN TAMBLYN, VICTORIAN ENERGY REGULATOR: Reliability is crucial.

TIM LESTER: Victoria's power regulator sets the charges that should coax energy companies into
spending on reliability.

JOHN TAMBLYN: We have had proposals from the distribution businesses for expenditure on the
networks of $2.8 billion over the next five years, a very significant investment and that is
consistent with them also proposing, except for one business, significant price reductions.

ROB BOOTH; In the southern states the problems I think are rather more serious.

TIM LESTER: Rob Booth argues the privatised model has in fact left the southern states with a
long-term issue - generation.

ROB BOOTH: It takes several years of expenditure, maybe even as long as four or five to catch up
with the fundamental shortage of generating capacity and that's the situation that is facing Vic
and South Australia, and to a lesser extent Western Australia as well.

TIM LESTER: Like Origin Energy's announcement last month of plans for a $1 billion gas-fired
station near Warrnambool in western Victoria.

If all goes well it will deliver power in 2008.

But if there is a looming crunch in generation it is Nemco's job to know about it.

LES HOSKING: Each state has had plenty of generating of capacity - it was built by governments that
wanted to ensure there was plenty of generating capacity.

TIM LESTER: Nor does Les Hosking agree that private or state-run investments have been better
investors.

LES HOSKING: I don't think there's any difference.

The economic equation is just the same.

TIM LESTER: But there is broad agreement on one part of the power equation - PETER DOBNEY: Well
it's all driven by air conditioning.

All the investment we're seeing these days in electricity networks infrastructure, upgrades,
whatever you like, is driven by the domestic air conditioner.

It is a sign of a fairly affluent society I guess.

TIM LESTER: Peter Dobney argues every home should have to pay an extra charge - as business does -
for the peaks in their power use.

PETER DOBNEY: You would think twice about running your air conditioner.

TIM LESTER: Politically, what chance?

PETER DOBNEY: Probably none.

TIM LESTER: Electricity can never be completely disconnected from politics and state governments
know there'll be angry customers if the power goes off this summer.

SIMON JONES: Very concerned about this summer in particular, obviously it will be hot again.

We haven't had a good record and the summer is when all the stress is on the power system.

I'm not looking forward to it at all basically.

KERRY O'BRIEN: Let's hope the power is more predictable than the weather.

Tim Lester with that report.