July 23rd, 2009
The electricity sector, a crucial element in NZ’s economy, faces a shake-up as Gerry Brownlee’s Ministerial review reaches Cabinet, probably on August 2. The Energy Minister initiated the review in April because of concerns about security of supply, the cost of power, and duplication of electricity sector governance. The Wolak report for the Commerce Commission identified insufficient competition to discipline suppliers against using market power. Wolak’s report has been used to accuse the big four power companies of “gouging” power users of $4.3bn between 2001 and 2007. Structural remedies include considering the balance of each generator’s fossil and hydro generation assets, a central purchaser for wholesale electricity, or a split between the generation and retail electricity businesses.
Given the $4.3bn “rip-off” is embedded in the public mind, the Govt can hardly back off from significant reform of what is regarded as a flawed energy market. The Electricity Commission, which costs around $90m a year, seemed destined for the chop, but some re-thinking of its value may see it survive, though there is scope for rationalisation of the regulatory powers it exercises alongside those of the Commerce Commission. If Cabinet approves the results of the Ministerial review, a discussion paper will be issued and final recommendations developed for Cabinet approval and possible legislative action by the end of the year.
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