ESANZ CHIEF EXECUTIVES' FORUM

I am very pleased to have this opportunity to meet you for the first time in my role of minister of energy.

it falls on you to be exposed to the new minister of energy for his first speech since being appointed.

i would like to begin by congratulating you on the real progress made in reforming the electricity industry over the past few years. change is never for the faint hearted whether in politics or business, and to be successful managing change requires courage, leadership and judgement.

PROGRESS IN TWELVE YEARS

in twelve years, the industry has come a long way. in 1984, when george orwell postulated we would be dominated by "big brother", your industry was indeed dominated by central and local government. the ministry of energy was responsible for electricity generation and transmission. wholesale electricity pricing was a political decision. the construction of new generation plants was monopolised by the ministry of works and characterised by poor investment decision making, cost overruns and long delays, often because of mindless industrial disruption.

taxpayers and energy consumers had no choice but to bear the costs.

local distribution and supply were the responsibility of 61 elected electricity supply authorities - roughly one for every 50,000 new zealanders.

industry was inefficient.

consumers had no choice.

industrial and commercial consumers - who are also employers - cross-subsidised domestic consumers.

since 1984, the orwellian vision has - thankfully - largely disintegrated. the market, where producers and consumers make their own economic decisions, rather than a bureaucrat or politician, has largely taken over. even though there are still elements of natural monopoly and cross-subsidisation, new zealand's electricity generation and distribution industry is light years away from the 1984 model. i have watched with interest the changes which have been made by the electricity companies you manage, to adapt to the new environment:

corporatisation has meant the industry has had to come to terms with the challenges of commercial discipline;

many of you have also been faced with takeover, either as a target or as a raider;

competition in the supply of electricity supply by other retailers into their competitors' network areas is becoming increasingly common for commercial customers, although disappointingly rare for household consumers as yet;

in the past few months, generators and distributors have had to come to terms with the complexities of purchasing electricity in a completely new way, and using financial instruments to manage your risk.

the immediate challenge is to get these reforms bedded down. consumers - and dare i say commentators - need to see the benefits in their power bills. the work put in over the past few years has laid a basic foundation for greater economic efficiency, and more secure supply in an increasingly complex and independent economic environment.

ELECTRICITY COSTS AND INTERNATIONAL COMPETITIVENESS

the costs the energy sector, in general, and the electricity sector in particular, place on industry are a key component of the international competitiveness of our export sector.

reducing their energy costs, and improving their ability to offset an appreciating nz dollar, is something i hope you will see as critical to this country's economic survival and prosperity.

there will be pressure on the government to reconsider the reforms if consumers - particularly domestic consumers - do not start to see real benefits. we don't want to go back to the old days.

without professing to understand all the intricacies of the wholesale market as yet, i understand it is working well after a shaky start for the first few weeks.

many of you have dedicated considerable time and effort to making it work, and i want to congratulate those who have pioneered the concept in nz..

the new market offers many advantages. new opportunities for demand-side management will arise. the potential for electricity companies and customers to manage their electricity demand and react to prices should provide significant gains over time. the market will enable customers to minimise costs.

in particular, industrial customers can - if they are given the right pricing signals - adapt their industrial processes to take advantage of periods of cheap electricity. this should lead to reductions in the need for new investment in generation plants, with corresponding benefits for our environment and the dead-weight costs of idle generating capacity.

the introduction of the wholesale electricity market should also boost retail competition where competing retailers will be able to offer differentiated products to customers.

this might be a quaint thought for those who see a watt of electricity as a homogeneous commodity product.

but they used to say the same about milk, which 30 years ago produced 2 consumer products - butter and cheddar cheese. nowadays milk generates over 1,000 different consumer products, so why not electricity?

COMPETITION DEEPENING

a number of companies are now actively competing for customers outside their distribution networks i would like to see much more competition develop, so consumers have genuine choice and more access to lower real energy prices.

however, competition is still focused on very large customers. competition for domestic customers has hardly developed at all and as i said in an interview last week, i intend to make the issue of competition and lower prices for domestic consumers something of a personal challenge for me as minister of energy.

i support those industry members which are actively involved in considering ways of promoting retail competition, including "profile metering", as an alternative to time of use metering.

i am aware that profile metering has some disadvantages, and some forms of its could impose increased risks on incumbent electricity companies. nevertheless, we must push the frontiers out to make it and other forms of technology work, in much the same way as was achieved in the wholesale electricity market.

i hope the industry will facilitate, rather than frustrate, the development of genuine competition to benefit consumers as well as shareholders, particularly where some parts of the electricity sector still enjoy elements of natural monopoly in their particular markets.

i expect that all of you have read with interest and despair, the ministry of consumer affairs report on domestic electricity contracts. you will have noted that the report offers plenty of brickbats and awards few bouquets. essentially, the report reflects the lack of competition available to domestic customers, and the patchy standard of contracts domestic consumers can rely on.

some companies were, i noted from media reports, rather dismissive of the report. that may be so, but it seems to me that it says something about a company which has a substandard domestic supply contract in terms of its view of its consumers. if there was genuine choice and competition for domestic consumers, i daresay those companies would take a different view of their consumers, and their revenue base. the ministry's report was disturbing and reflects a wide opinion of view i hear from many sections of the public about their local electricity company.

it is in your interest to dispel this opinion as much as it is mine.

i was pleased, however, to note that esanz recognises these issues, and is already working on overcoming the problems. i look forward to the development of real improvements over the next few months.

MONOPOLY SUPPLY

the monopoly in domestic supply needs to be broken down as quickly as possible, so that domestic consumers start to see, as well as get, the benefits of the electricity reforms. if this does not happen, consumers are going to put pressure on the government to see that they get a fair deal through more interventionist mechanisms. it could go so far as to bring the entire reform process into question.

i would simply observe that the proportion of electricity conveyed by companies on behalf of their competitors is low by international standards: only 7.5% in 1995-96. this compares with 8.6% by competing retailers and 15.7% by generators in the uk, where competition is open to only half the market, unlike in new zealand where the our market is 100% open.

the solution is largely in your hands, and that is to embrace competition in a vigorous generation and supply market. the answer is not to entrench or enhance monopolistic tendency by killing the competition at the expense of the consumer.

INFORMATION DISCLOSURE

a related issue is the ministry of commerce's review of the electricity (information disclosure) regulations. many companies will have made submissions on the ministry's discussion paper. i understand that ministry officials are making a presentation to this forum outlining their current thinking on the major issues, given the points raised in submissions.

information disclosure is partly intended to encourage competition by putting competing energy retailers in a stronger negotiating position with distribution companies. where access is in dispute, disclosed information can help competing retailers decide if a case might be made under the commerce act. the commerce commission has said that the honeymoon period is over in terms of the industry coming to grips with the requirements of the commerce act, and it is time for access arrangements to be put in place without delays.

i agree with that view.

in addition, information disclosure puts natural monopoly line businesses in a gold fish bowl. disclosed information is intended to help customers, consumer groups, analysts, and the commerce commission identify any instances of abuse of market power. shareholders cannot expect to obtain a better return on their investment in the electricity industry which is markedly different from other enterprises having regard to the inherent risk of the business they are in.

you are aware that my predecessor took a healthy interest in these matters. i intend to continue this.

one of the key issues in the ministry of commerce's proposals for amendment to the disclosure regulations is a tightening of the rules for allocating costs amongst your business units. as i noted in my press statement on the consumer affairs study, "there is a considerable natural monopoly element in the supply of electricity, and this needs to be broken down". i look forward to giving further consideration to the proposed amendments to the regulations when officials report to me.

TRANSMISSION PRICING

i understand that there are inevitably some stress points as matters settle down in the reformed industry. one of these is the hvdc pricing debate.

the strong direction of the reforms has been away from government involvement, and the government's advice to trans power reflects this - "sort this issue out through normal commercial negotiation with your customers".

the government is concerned about efficient pricing of all aspects of transmission services. we are also concerned that pricing is fair to consumers in both islands. i look forward to a positive announcement on this issue in the very near future.

another transmission issue which of interest to you is the possible sale of trans power's spur lines. officials are giving consideration to some of the issues involved. the government's interest here will include ensuring that sale of these spur lines would not prejudice neutral access to them. other issues to be resolved include an appropriate price and the range of possible buyers for the assets. for example, should the purchasers be restricted to the local electricity company served by that spur line?

THE BENEFITS OF COMPETITION

the key point that i want to leave with you today is that we need to ensure that all consumers obtain the full benefits of competition.

the path to a healthy electricity sector lies through healthy, transparent competition, and not through regulation.

but consumers need to be confident that they are getting an appropriate level of service at the lowest possible cost. they need to be confident that shareholders, or the nonaccountable consumer trusts who own a significant part of power company shareholdings these days, are not benefiting at their expense.

the bottom line is that, if consumers do not see real benefits, pressure on the government to introduce more heavy-handed regulatory measures - such as price control - will increase.

i do not want to go back to the days of interventionist government involvement in the industry, and we certainly do not want to waste the work put in over the past few years. the government has done its part by promoting and mandating reform of the industry.

the onus is now on you, the electricity generation and distribution companies, to make these reforms work to the benefit of all your shareholders.

thank you for inviting me to speak to you today. given my other portfolio responsibilities, i look forward to seeing your operations on the ground, and the opportunity to see for myself the progress and the potential of industry which is vital to new zealand's economic prosperity and the well being of all new zealanders. 22 January 1997 Social Welfare Minister Roger Sowry ISSUES FACING CYPFS ARE PRIORITY FOR DEPARTMENT

The pre-election briefing papers for Social Welfare have highlighted a range of issues facing the Children Young Persons and their Families Service.

"The Department and the Commissioner for Children have identified a range of issues including resourcing which the Coalition Government considers are of very high priority," says Social Welfare Minister Roger Sowry.

"We already have a number of pilot programmes in place specifically targeted to help young people empower themselves and move into education or training.

"Programmes like social workers in schools, and Family Service Centres which I regard as positive initiatives, are preventing people from entering the system at a much more critical level.

"It is in New Zealand's interest to work to protect our children. We are already seen as world leaders in welfare initiatives, but we must make sure we have the resources to assist people who are brought to the notice of the department.

"CYPFS social workers aren't the only people working with children and young persons. We must work to establish good linkages with social workers from the Government sector and the voluntary sector," says Mr Sowry

ENDS