New Engineer: Privatisation of Engineering Works

Citation: This is article was published as Sharon Beder, 'Corporate integrity difficult to control following privatisation', EngineersAustralia, February 1999, p. 60.

This is a final version submitted for publication. Minor editorial changes may have subsequently been made.

Privatisation of public utilities, particularly electricity, is on the agenda for the coming election in NSW. Numerous arguments both for and against this proposal have been raised with public welfare being the key determinant. But there is one important argument for a show of caution in the privatisation scramble that hasn't been aired. It concerns the corporate and engineering integrity of potential owners of infrastructure that supply essential services.

Corporate and engineering integrity are difficult to control following privatisation. Even if the government takes care who the utilities are initially sold to, market-driven changes of ownership in the years following privatisation would render such precautions worthless. Once a utility has been privatised the government loses control over who eventually comes to own it. The status of the public in respect to a privatised utility changes from collective owners to passive consumers.

Apart from the cost and reliability of the actual services &emdash; i.e. water, electricity &emdash; this change of status might be most significant in the areas of safety and the environment. A good example of the sort of doubts that can arise from a change of ownership can be found in the recent sale of a privatised electricity company in Victoria. CitiPower, which distributes and sells electricity to quarter of a million people in inner Melbourne and the CBD, was purchased by the US giant, American Electric Power (AEP), in December last year.

Because it was a commercial transaction between two companies very little attention was paid to the purchase outside of the financial pages of the newspapers. No questions seem to have been asked about AEP's past safety record. Yet there are some things the Australian public should know about AEP and its safety record.

AEP is a global energy company which generates, purchases, transmits and distributes electricity in several states in the US as well as owning 50 percent of Yorkshire Electricity Group in the UK and 70 percent of a two-unit power plant nearing completion in China. In Australia AEP is keen to expand its holdings beyond CitiPower. According to its president, Donald M. Clements, "AEP Resources has long been interested in adding Australian assets to our portfolio of global investments," and CitiPower is intended to be a "cornerstone" for AEP's Australian expansion. The company already owns 20 percent of Pacific Hydro in Victoria and has been among the bidders for sections of Victorian Gas due to be sold off in early 1999. The company says it is keeping a watching brief on Australian opportunities from its office in Sydney and it would be a likely bidder for any privatised electricity in NSW.

The problem with AEP's safety record concerns one of its nuclear power plants in the US. The Donald C. Cook Nuclear Plant has been closed since September 1997 because of engineering deficiencies uncovered by Nuclear Regulatory Commission (NRC) inspectors. 1,150 employees have been laid off as a result and the company has been fined $US500,000.

The two-reactor plant, located near Bridgman, Michigan, is a 2,100 megawatt plant. NRC design inspectors found over 30 issues of concern including foreign material in the containment, serious problems in the emergency cooling systems and various design and maintenance failures. The CEO of AEP, E. Linn Draper, a nuclear engineer himself, admitted to the NRC at a public meeting (30/11/98) that AEP had become "insular and somewhat overconfident" and had failed to identify problems and quickly address those they did identify. (see http://www.nrc.gov/OPA/reports/cook.htm)

AEP's insularity and overconfidence seems to have annoyed NRC section chief, Ron Gardner, who told the company at an earlier meeting (according to Julia Swidwa, South Bend Tribune, 28/2/98): "It appears we're in another situation where it takes our intervention to get you guys to pick up the ball. ... Either you guys aren't looking, which is bad. Or you're looking, then ignoring. I don't know which is worse. It's very disturbing to me." In response Al Blend, AEP vice president of nuclear engineering, reportedly confessed, "We recognize we fell asleep at the switch."

The question is, will "falling asleep at the switch" be a chronic problem with privatised electricity systems?