Power industry gets second chance

By RICHARD BRADDELL

WELLINGTON - The electricity industry has been given another chance to prove itself capable of self-regulation, but would face the ultimate sanction of a revamped Commerce Commission under proposals mooted by the Government's electricity inquiry.

The report, made public yesterday, has recommended that the present wholesale market governance bodies, the NZ Electricity Market, Maria and MACQS, be replaced by a single body whose membership would be compulsory for generators, retailers, distributors and Transpower.

The inquiry has also rejected calls from consumer groups for the immediate introduction of the "CPI minus X" formulation that would limit lines company price increases to the movement in the consumer price index less a prescribed percentage.

CPI-X legislation introduced by the previous Government was stymied last year when the other political parties combined against it.

But the inquiry has not backed away from CPI-X in its entirety, instead recommending that a revamped Commerce Commission should have the power to impose it on individual lines companies for a maximum five-year period should it appear they are overcharging.

New price control provisions would be introduced into the Commerce Act, and new rules for determining lines company valuations would be required.

In a recommendation regarded as key to encouraging retail competition among small consumers, the inquiry said fixed lines charges should be limited to 25 per cent of the total electricity bill, with the rest recovered by variable charges.

Lines charges account for around half the total cost of electricity for consumers. The effect would be that larger users would pay more and smaller ones less, Energy Minister Pete Hodgson said.

However, soft-pedalling on CPI-X was branded as 10 steps backward by the chairman of the Major Electricity Users Group, Terrence Currie.

"The monopolies within the industry have been let off scot-free with price control still just a threat," he said.

But the report was welcomed by Philip Bradley, the chief executive of M-Co, the manager of the electricity market.

"It's really a vote in favour of the industry in the sense that the industry continues to be in control of its own destiny, provided it gets it right," he said.

While the report has not yet become Government policy, Mr Bradley said it was likely much of it would. "The industry has a lot of work to do, no doubt about that, and it's got to get up and get going quickly. It's going to have to work cooperatively.

"It also has a very strong emphasis on making sure all the stakeholders have a say," he said, listing consumers, producers, Transpower, traders, lines companies and service providers in that category.