Labour Demonstrates Shocking Ignorance of Electricity

  • Max Bradford

The Government is actively working on a package of further electricity industry reform to establish effective competition at all levels of the market from generation to distribution and retailing, Energy Minister Max Bradford said.

"Labour has demonstrated its usual incredible ignorance of energy issues with Ross Robertson's latest claim that no action is being taken to further increase competition in the energy sector," Mr Bradford said.

The Government is reviewing the future of ECNZ with a view to possibly splitting the state-owned generator. It has sought submissions from throughout the industry on that issue and other ways of making the entire electricity industry more competitive.

The advantages of splitting ECNZ are that customers will have a variety of generators, which will lead to better service, clearly competitive contract offers, and will eliminate any doubts about generator dominance in the wholesale market.

"However, there is little point in moving to introduce competition into electricity generation if we do not look at the retail end of the market to ensure the benefits are passed on to residential consumers.

"Choice of power supplier and control over energy use for domestic consumers is top priority. There has to be a reform package including measures designed to aid provide domestic power consumers a choice of energy provider."

While light handed regulation though the information disclosure regime was the present tool to encourage competition in the retail and distribution sector, Mr Bradford said he was sceptical about its potential to prevent creative accounting which blurs the boundaries between monopoly line and competitive energy retail businesses.

"It seems likely that the formal separation of the line and energy businesses of the power companies will be necessary to further aid competition. Power companies are on notice that steps in that direction are likely to be part of the reform package if competition for domestic consumers is not quickly forthcoming."

Most importantly separation would restrict the ability of the line owners to prevent competitors accessing their energy retailing business, and introduce more competitive prices for domestic consumers.

"When suppliers have a captive group of consumers, they can cover losses on other transactions by charging the captive customers more. Examples would be where a power company attempted to capture market share by charging below cost, built an uneconomic generation project, or paid too much for a supply contract."

Mr Bradford said he expected all necessary policy decisions to be taken by the end of the year, with any required legislation completed in 1998.

"It makes no sense to leave things as they are, when the alternative, a fully competitive market, is now clearly feasible."