THE New Zealand Herald AND DAILY SOUTHERN CROSS MONDAY, SEPTEMBER 28, 1931. STATE AND ELECTRICITY.

New Zealand Herald, Volume LXVIII, Issue 20989, 28 September 1931, Page 6

THE New Zealand Herald AND DAILY SOUTHERN CROSS MONDAY, SEPTEMBER 28, 1931. STATE AND ELECTRICITY.

Recent developments by which management of the New Zealand State railways has been handed ever to an independent board, free of Government control, justify considering the future of another great enterprise financed out of money borrowed by the State —the supply of electric power. The circumstances of these two great trading ventures are in many ways different. The main feature they have in common is the one already mentioned, the source of the capital expenditure upon them. Their history is entirely different. Railway construction dates back to 1860, to the days of Provincial Governments. Though the Railways Act of 1870 laid down a general policy for the whole country, it was not until 1876, with the abolition of the Provinces, that all publiclyowned railways came under the one authority. The development of electric energy from water power as a State enterprise was not given official existence until 1910, when the passing of the Aid to Water-power Works Act formally set it in train. It is an infant activity of the State compared with railway building and operation. There are differences, too, in method that must not be overlooked. The railways, throughout their history, have been completely a State enterprise, the service being given to the ultimate patron by the same agency which raised the capital, built the lines and operated the traffic. In electricity supply the final consumer is not in direct relation with the State. It supplies energy wholesale, leaving other agencies—generally public bodies—to sell retail to the public. In this general principle lies the chief difference between two great public trading enterprises. Allowing fully that the two things are not comparable, detail by detail, it is still reasonable to ask whether the course found necessary for the railways would be advisable for the hydro-electricity supply scheme. The first poiut to be recognised is that the policy of independent management has not been adopted for the railways on theoretical grounds, but from sheer necessity. Financial deterioration had reached so alarming a stage that something had to be done to deal with mounting deficits and to resuscitate an enterprise not only incapable of paying interest on its capital, but with its reserves and other resources practically exhausted in the effort to do so. The report of the general manager last year, read in conjunction with that of the Royal Commission which investigated the affairs of the department, shows how demands for interest charges had reduced to mere paper assets the reserves that should be maintained if the barest necessities of sound finance were to be preserved. There was no working capital. Assets which under ordinary commercial management would have been written off years before were still retained in the balance-sheet. The Royal Commission was particularly emphatic about this. It said "from the inception of the department and up to 1925 the accounts were kept on a cash basis, and no means were available whereby provision could be made for deferred maintenance, accrued depreciation or reserves of any kind." It recommended cancellation of capital to cover the position disclosed, adding, "if the railways were privately owned this loss of capital would undoubtedly be written off, as the directors could not present, and the shareholders would not agree to, a balance-sheet showing assets much in excess of their value." This was the fruit of some 60 years of operation without proper business provision being made for the capital requirements of the greatest enterprise the State owned and operated. The railways were subject to year to year expansion, with consequent capital increases; the hydro-elec-tricity power works are being built to a definitely terminable programme. When the Waitaki scheme is completed, no major constructional work will remain to be done if the present schedule is not extended. Though the capital cost has been far greater than the original estimate, its ultimate limits can now be seen. The accounts, as presented .year by year, include definite provision for depreciation, interest and sinkinp fund. In one instance, Lake Coleridge, it was reported last year that, after all such charges had been met, there was a net profit of £44,390, making it possible to pay off the accumulated deficiency in the sinking fund and create a reserve fund. Despite difficulties and setbacks, it is reasonable to expect similar results froift all the other stations. The beginning being thus clearly indicated in the accounts, the lesson of the railways can easily be applied. It is that returns from the sale of electric energy shall not only be handled in this individual fashion, but that money set aside for capital purposes shall be applied to those purposes : that sinking funds shall be used for the repayment of loans, and the capital account of the enterprise credited accordingly: that depreciated assets shall be replaced out of the funds accumulated for the purpose, and written off in accordance with ordinary business principles To this end, the simplest plan is obviously to do as has been done with the railways. Hydro-elec-trieitv sunnly is now merely one activity of the Public Works Department. It has no separate existence. It should be eriven an identity of its own. Further, instead of waiting for necessity to force the step, the country should insist on this, and insist on an independent management, able to oppose such a drain on its finances as the Railway Department has suffered for the sake oF the Budget. It is true, as has been said, that the railways have no capital, "merely a collection of loans." The electricity supply syfitem, as a cognate enterprise, must be protected from that fate ; and now is the time to do it.