AGY-6109 | Royal Commissions into the price of electricity of certain suppliers

Full description

Royal Commissions were held in 1921 and 1924 into the price of electricity generated and supplied by the Municipal Council of Sydney's Electricity Supply Undertaking and by the (Balmain) Electric Light and Power Supply Corporation Ltd. The inquiries investigated whether price rises sought by the Council and Company were justified against increased or decreased costs since 1915. These Commissions grew from discontent with the generation of electricity, but were set against a background of increasing State control of the price of energy.

The Royal Commissions into the price of electricity used the methods that the State government had already applied to the gas industry. From 1913 the State government controlled the price of gas through the Gas Act, 1912, and amending acts. The Act initially applied to the three main companies, but was later extended to others. It set a 'standard price' per 1000 cubic feet. If a company wished to increase the price, the Minister for Labour and Industry could call a Royal Commission where the company had to prove that costs had increased since the 'standard price' was set. These costs were initially only wages, but after 1918 included freight, coal, oil, rates and other expenses chargeable to revenue, and a reasonable return on the cost of buildings, and manufacturing and distributing plant. During World War I the price of gas was controlled under the Necessary Commodities Control Act, 1914 (Act No.18, 1914) for the duration of the war and six months after. Fifteen Royal Commissions were held from 1918 to 1931 under the Gas Act, 1912, and amending acts. (1)

Supply of electricity within Sydney was dominated by the Municipal Council of Sydney's Electricity Supply Undertaking, but restrictions imposed by World War I meant it was unable to keep pace with demand. The Undertaking began to generate electricity on 8 July 1904. In its first ten years it dropped its price to consumers from 5 pence to 1.5 pence per kilo-watt hour, bought out six rival companies, covered the City and twenty-three other municipalities, and in 1913 supplied its nearly 10,000 customers with almost 40 million units of electricity. World War I curtailed the Council's capacity to expand throughout the war and into the early 1920s, due to shortages of imported spare parts and new machinery, lack of local suppliers, and the enlistment of skilled workers. Demand for electricity continued to grow and sales of electricity increased by 80 per cent, but no additional generating plant entered service from November 1915 and January 1921. Demands from local Councils for electricity for street lighting and for public use increased from 1919. But the Undertaking still faced equipment delays even though the war was over. For example, two turbo-alternators, ordered from Britain in 1917, were not installed in Sydney until December 1921 and June 1922. (2)

The Council tried to source additional electricity from outside its own system. In 1916 it commenced negotiations with the New South Wales Government Railway and Tramway Commission to use its electricity supply. Although informal agreement was reached in March 1917, the power supplies were not compatible and converting equipment had to be bought from America. The entry of America into the war, before the equipment could be supplied, resulted in the same embargo on the manufacture and export of electrical equipment as in England. It was not until 1 April 1919 that the Railway electricity could be used on the Council's system, and would be until 1929. (3)

Frustration grew with the inability of the Electricity Supply Undertaking to meet the demand for electricity. The Local Government Act, 1906 (Act No.56, 1906), allowed local Councils to manufacture and supply electricity. Rather than accede to Councils' plans to borrow money to build their own power stations, the Department of Local Government decided in August 1919 that Councils could bypass the Undertaking and buy bulk electricity direct from the Railway Commission for resale and distribution. The Undertaking's compromise of agreeing to sell bulk electricity to Municipalities nine miles or more (fourteen and a half kilometres) distant from the Sydney Town Hall had not been enough. Despite the fact that the Railway Commission had no legal powers to enter into formal supply arrangements with outside bodies until 1922, they provided electricity to Parramatta Council (1921), St George County Council (1923) and Sutherland Shire (1925). The Local Government Act, 1919 (Act No.41, 1919), allowed Councils to ask the government to build works for the supply of electricity and also contained a mechanism, known as a County Council, whereby several Councils could combine to do so. In June 1920 the Minister for Public Works called a conference to discuss the bulk supply of electricity. The conference met on fifteen occasions and recommended that a Bill be submitted to Parliament for the control of electricity supply in New South Wales that would include a State Power Commission to generate, transmit and distribute power, and sell it in bulk. However it would be decades before it was established. (4)

In late 1920, against this background of discontent, the State Government passed the Municipal Council of Sydney Lighting (Amendment) Act, 1920 (Act No.22, 1920).(5) From 1 December 1920, the Act limited the ability of the Electricity Supply Undertaking to change its price to other councils under existing agreements. It had to ask the Minister for Labour and Industry to call a Royal Commission. The inquiry would be held by a Supreme Court Judge, and the Minister, the Municipal Council of Sydney, and the local councils could be represented and tender evidence. The Judge was to determine whether the cost to the Municipal Council of Sydney of producing and supplying electricity had increased above the average cost in 1915. The price under the agreements could be increased by one tenth of a penny per kilo-watt hour for every increase in costs of one tenth of a penny per kilo-watt hour. If an increase was granted the Minister could institute further inquiries to check the costs after twelve months at the new price. The Act also set a limit on the minimum price per month that the Undertaking could charge any person or corporation for electricity, the maximum rental charge per month for the provision of meters, and the percentage that the hire rate of electric motors could increase. All increases had to be determined through an inquiry by a Supreme Court Judge.

In December 1920 this price control was extended to other electricity producers. The Supply of Electricity (Variation of Agreements) Act, 1920 (Act No.30, 1920), applied the provisions of the Municipal Council of Sydney Lighting (Amendment) Act, 1920 (Act No.22, 1920), to the (Balmain) Electric Light and Power Supply Corporation Ltd, or any other person or firm or any company who had agreed to supply electricity for any purpose. The Act covered the (Balmain) Electric Light and Power Supply Corporation Ltd immediately, but could also be applied to others if the Government wished. The (Balmain) Electric Light and Power Supply Corporation, a private company, operated the Balmain Power Station at Iron Cove from 30 September 1909 until taken over by the Electricity Commission in 1957-58. It supplied Balmain, Leichhardt, Ashfield, Newtown and Petersham under contracts with their Councils, as well as large industries like Mort's Dock and Balmain Colliery. (6)

The first Royal Commission held under these Acts was in 1921. The Council and Company sought price rises due to the increase in costs since 1915. Letters Patent were issued to the Honorable Sir Charles Gregory Wade, KCMG, a Judge of the Supreme Court of New South Wales, on 1 March 1921 'to inquire and certify ... whether the cost to the said Council and Company or either of them of the generation and supply of electricity has so increased ..., and, if so, by what amount, and also such cost per unit (kilo-watt hour) at the time of your inquiry, and in so inquiring you are directed to take into consideration all increases and decreases in wages, freight, coal, oil, rates, and other expenses properly chargeable to revenue, and such sums as you may determine will ensure a reasonable return upon the value of the land used ... in connection with their respective electric-lighting undertakings, and upon all moneys expended ... upon buildings and apparatus for the generation and supply of electricity....' On 31 March 1921 a further Letter Patent was issued enlarging the scope of the Royal Commission and authorising Wade to 'say, - (a) What is a fair and reasonable rate to be charged as a minimum charge for electricity supplied? (b) What if a fair and reasonable rate to be charged for the rental of meters provided by the Municipal Council of Sydney? (c) What is a fair and reasonable rate to be charged by the said Council for the hire of electric motors?' (7) The inquiry closed on 16 June 1921. The Municipal Council of Sydney was granted a five-tenths of a penny per kilo-watt hour increase for its agreements with Councils and the Electric Light and Power Supply Corporation a four-tenths of a penny per kilo-watt hour increase for its agreements with Councils.( 8)

In 1924 the Royal Commission to inquire re the (Balmain) Electric Light and Power Supply Corporation Limited was held. It was called by the Minister for Labour and Industry, rather than by the Company. Letters Patent were issued on 14 October 1924 under the Supply of Electricity (Variation of Agreements) Act, 1920, to the Honorable James Lang Campbell, a Judge of the Supreme Court, to see 'whether since the date of the said Proclamation there has been a reduction in the cost to the Company of the generation and supply of electricity of at least .1d. (one-tenth of a penny) per unit (kilowatt hour) and whether such reduction in cost has been continued during the period of one year preceding the holding of this further inquiry....' A second Letter Patent was issued on 11 November 1924 extending the time for the Commission until the 24 November 1924. (9)

No further Royal Commissions were held into the price of electricity supplied by the Municipality of Sydney's Electricity Supply Undertaking. In 1922 the Municipal Council of Sydney formally endorsed the policy its Undertaking had followed for more than a decade. The role of the Undertaking was '(a) To produce electric light and power at the lowest possible rate; (b) To produce sufficient to cover working expenses, interest, sinking fund, depreciation, and allocation of a maximum of one percent (1%) towards the relief of rates'. (10) The Undertaking voluntarily dropped its price three times between 1923 and 1931, while still making a profit due to the expansion in its business.

The Municipal Council of Sydney Electric Lighting (Amendment) Act, 1928 (Act No.48, 1928) repealed the Municipal Council of Sydney Lighting (Amendment) Act, 1920 (Act No.22, 1920). It replaced the mechanism of a Royal Commission, headed by a Supreme Court Judge, with a Board of Inquiry. The Board consisted of three members, one nominated by the Minister, one by the Municipal Council of Sydney, and the third, the chairman, agreed to by both the Minister and Council. Board members would have the rights and privileges of Royal Commissioners. The Board would also inquire into prices for the hire of meters or any fittings and the hire of electric motors. It would calculate a price that took into account interest payable on loans raised for the Undertaking, the establishment of a sinking fund, expenses properly chargeable to revenue including depreciation of assets, and provide a reasonable reserve for contingencies. The Board could also inquire about service charges for electricity and the cost of electricity to customers whose needs differed markedly from the majority. It would also hold an inquiry when the Municipal Council of Sydney wished to supply electricity to an area not previously supplied. (11)

The holding of Royal Commissions to investigate individual suppliers' gas and electricity prices ceased with the Gas and Electricity Act, 1932, (Act No.4, 1932). It extended to all electricity and gas suppliers the system of using Boards of inquiry. The Act regulated the supply, consumption and use of gas and electricity and provided for the regulation of companies, corporations, firms and persons supplying gas and electricity, particularly with regard to price, dividends, reserves, funds, accounts and the issue of shares. It commenced on 29 March 1932. A Commissioner of Gas and Electricity was appointed by the Governor for seven years. Inquiries were now to be held by the Commissioner and three members appointed by the Minister, one representing the company, one representing the workers' union, and the third an officer of the Public Service, with the Commissioner as the casting vote. (12)

Endnotes
1. NRA 6097, Royal Commissions of inquiry into the standard price of gas.
2. George Wilkenfeld and Peter Spearritt, Electrifying Sydney: 100 years of EnergyAustralia, Sydney, Energy Australia, 2004, Chapter 4, pp.3-5 http://www.energy.com.au/energy/ea.nsf/AttachmentsByTitle/Electrifying_Sydney_100_Years_of_EnergyAustralia/$FILE/Electrifying+Sydney+100+Years+of+EnergyAustralia+.pdf (cited 3 April 2008); Gordon F Anderson, Fifty years of electricity supply: the story of Sydney's Electricity Undertaking, Sydney, Sydney County Council, 1955, pp.28, 30, 35-36, 50, 56, 58-69, 74-75.
3. Anderson, ibid., pp.66-67,114; Wilkenfeld, op.cit., Chapter 2, pp.4-6.
4. An Act to consolidate and amend the law relating to the Local Government of Shires and Municipalities [Assented to, 28th December, 1906] (Act No.56, 1906), Sections 109(xxi), 110; Anderson, op.cit., pp.75-78, 90; Wilkenfeld, op.cit., Chapter 2, pp.4-5; An Act to make better provision for the government of areas; to extend the powers and functions of local governing bodies; to establish bodies to take common actions on behalf of areas; to repeal certain Acts; to amend certain other Acts; and for purposes consequent thereon or incidental thereto. [Assented to, 22nd December, 1919] (Act No.41, 1919) Part XIV Sections 373-88, Part XXIX Sections 560-73.
5. An Act to provide for the variation of certain agreements made by the Municipal Council of Sydney with regard to the supply of electricity; to authorise the Council in certain cases to make charges in excess of the charges specified in the said agreements; to amend the Municipal Council of Sydney Electric Lighting Act; and for purposes connected therewith. [Assented to, 23rd December, 1920] (Act No.22,1920).
6. An Act to provide for the variation of certain agreements relating to the supply of electricity; and for purposes connected therewith. [Assented to, 29th December, 1902] (Act No.30, 1920); 'Balmain Power Station, New South Wales - Wikipedia, the free encyclopaedia', http://en.wikipedia.org/wiki/Balmain_Power_Station,_New_South_Wales (cited 3 April 2008).
7. Joint Volume of Papers presented to the Legislative Council and Legislative Assembly and ordered to be printed, 1921, Sydney, NSW Government Printer, 1922, Vol.3, pp.1-2; New South Wales Government Gazette No.32, 4 March 1921, pp.1504-5; No.45, 1 April 1921, p.2067.
8. New South Wales Government Gazette No.92, 1 July 1921, pp.3867-68. The report of the Commission was published in the Industrial Gazette 31 July 1921.
9. NSW Government Gazette No.134, 17 October 1924, p.4786; No.144, 14 November 1924, p.5167.
10. Wilkenfeld, op.cit., Chapter 4, p.5; Anderson, op.cit., pp.100-102, 131.
11. An Act to regulate the price of electricity supplied by the Municipal Council of Sydney; to amend the Municipal Council of Sydney Electric Lighting Act, and the Electric Light and Gas Emergency Act, 1917, and certain other Acts; to repeal the Municipal Council of Sydney Electric Lighting (Amendment) Act, 1920; and for purposes connected therewith. [Assented to, 29th December, 1928] (Act No.48, 1928), Sections 21A, 44(iv).
12. An Act to regulate the supply, consumption, and use of gas and electricity; to prescribe the standards of heating power, purity, and pressure of gas; to provide for the regulation of companies, corporations, firms and persons supplying gas and electricity, and particularly with regard to dividends, reserves, funds, accounts, and the issue of shares; to repeal the Gas Act, 1912, as amended by subsequent Acts, and the Electric Lighting and Gas Emergency Act, 1917; to amend an Act an Act passed in the eighth year of the reign of His late Majesty King William the Fourth, intituled 'An Act for lighting with Gas the Town of Sydney in the Colony of New South Wales, and to enable certain persons associated under the name, style, and firm of 'The Australian Gas Light Company' to sue and be sued in the name of the Secretary for the time being of the said Company, and for other purposes therein mentioned'; and for purposes connected therewith. [Assented to, 29th March, 1932] (Act No.4, 1932), especially Section 16; NSW Government Gazette No.41, 29 March 1932, p.1115.