Electricity Commission challenged

By Pattrick Smellie

Tuesday 24th February 2009

The Electricity Commission faces a serious challenge to its existence from a Ministerial working party announced this morning by Energy Minister Gerry Brownlee at the National Power Conference in Auckland.

In his first keynote speech as Energy Minister since taking the portfolio late last year, Brownlee strongly endorsed the thrust of a Business New Zealand-commissioned report, released yesterday, that questions the role of the EC across its current range of responsibilities.

In particular, Brownlee fingered the need to "disentangle" the regulatory confusion between Transpower, the Commerce Commission, and the EC.

The Government was now "working through" the composition of a Ministerial working party that would involve industry participants, customers and government officials, with a view to issuing a new Government Policy Statement on electricity governance by the end of the year, along with a revamped National Energy Strategy.

In contrast to the existing NES, the over-riding goal would be economic growth rather than environmental outcomes, and a balanced approach to affordability, security of supply, and New Zealand's carbon emissions obligations under the Kyoto Protocol, Brownlee said.

Three key reports would feed into the review: the Business NZ paper on electricity sector governance, the forthcoming Commerce Commission-commissioned review of potential abuse of market power by electricity generators, and the recently completed review of the 2008 winter power shortages.

Brownlee highlighted concerns at delays and potentially unnecessary duplication in national grid investment caused by the EC's role in approving grid investment plans.

In recent years, the difference between EC-approved plans and Transpower applications for investment was a mere $120 million, raising questions as to why the approval was even necessary.

However, he poured cold water on the suggestion in the Business NZ report, penned by economic consultants LECG, that electricity market participants were best-placed to advise on market structure and rules, saying the "Wild West days of 1998 to 2002" would not be repeated.

With the long-delayed Commerce Commission report's release "now imminent", Brownlee said the Government would be looking for ways to "get off the escalator of price increases that we've seen, particularly in the last five years".

If the Commerce Commission report found evidence of abuse of market power, "the Government will not hesitate to act", Brownlee said.

He challenged generator-retailers to consider "how much rancour do we want when electricity affordability is so important, especially to the economy during this downturn?"

The Government would also be seeking a further round of seismic data to encourage hydrocarbon exploration, and would review the petroleum exploration regime to ensure it was "fit for purpose" The existing minerals regime was also up for review.

Brownlee also signalled forthcoming announcements that are likely to equalise the tax treatment of bio-diesel and bio-ethanol, because the different treatments were illogical and potentially New Zealand bio-diesel producers while favouring imports of bio-ethanol.

A further package of announcements was also imminent on policies to encourage private investment in home insulation retro-fitting, in a further move to try to maintain building industry activity during the recession.

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