Power industry attempts to calm fears of cartel

By BRIAN FALLOW

The designers of a proposed self-regulation structure for electricity have modified their proposal because of Commerce Commission concerns that it gives too much power to the big generators.

The commission is conducting public hearings on whether it should authorise a structure and rulebook to govern the way the industry trades electricity. The alternative is likely to be a Government regulator.

Critics, mainly but not extensively from the consumer side of the industry, argue that it would be in effect a licensed cartel, entrenching the dominance of the vertically integrated generator-retailers.

The commission itself has expressed concern about the potential for desirable and pro-competitive rule changes to be voted down by the vertically integrated generators.

Voting rights on the wholesale electricity market's trading rules would be divided equally between generators and purchasers. But since the generators control most of the electricity retailing market, at the wholesale level they are the main buyers as well as sellers and would therefore dominate the voting.

The Electricity Governance Establishment Committee, chaired by David Caygill, while not conceding these concerns are valid, has put up a proposal to address them.

If a rule change has been voted down, but the Electricity Governance Board still considers it would be pro-competitive, has a net public benefit, is consistent with the rulebook's guiding principles and is not vexatious or trivial, it would have a right to send it back for a second vote.

If it was voted down a second time the board could appeal to the rulings panel, whose decision would be binding. The rulings panel, modelled on the existing market surveillance committee, would be a standing committee of five people, independent and multi-disciplinary, appointed by the board.

The executive director of the Major Electricity Users Group, Ralph Matthes, said the second vote proposal failed to address the central problem with the proposed structure, which was that the Electricity Governance Board would lack decision-making powers.

"Under the rulebook [the generators] would still dominate the rule-making process. We say that's not good enough. The EGB has to call the shots in terms of the big public policy decisions, and it has to therefore have decision-making powers."

Having a second vote among market participants and then an appeal process would introduce additional delays and additional transaction costs, some of which would fall on consumer representatives.

The proposal for a second vote and appeal is a response to an invitation by the commission to suggest conditions it might attach to an authorisation to address its concerns about pro-competitive rule changes being voted down.

But Matthes says the commission is on dangerous ground in terms of process.

"The applicant should not be using the application process to negotiate with the commission conditions that might just get it over the authorisation barriers.

"If they think the original application is not going to succeed they should submit a new one, with a full cost-benefit analysis.

"Now we have an application plus conditions. If you are going to play that game we could think of some conditions of our own."