State set to control powercos

By BRIAN FALLOW

The Government is making plans for a state regulator of the electricity sector, conceding that its preferred option, industry self-regulation, will probably not get off the ground.

Industry players must vote by May 14 on whether to accept a set of self-regulatory arrangements capped by an Electricity Governance Board elected by industry participants.

The rules were draw up by a committee headed by David Caygill in an arduous negotiating process over the past three years. They received the blessing of the Commerce Commission last September.

But Comalco and Transpower, the operator of the national grid, are challenging the commission's decision in the High Court.

And the Transpower board decided on April 4 that it would vote against the industry EGB and its rulebook in the ballot.

"It can't work if they [Transpower] don't join," Caygill said.

If an unquantified "substantial majority" of the industry vote for the rulebook, Caygill's committee would put it up for industry players to join. It remained possible that Transpower would relent at that point.

Hodgson said that while the industry had made substantial progress, it was probable, though not certain, that the industry EGB proposal would fall over.

The Cabinet yesterday voted $400,000 to start work on Plan B, setting up a Crown EGB, including the appointment of staff and consultants.

Transpower chief executive Bob Thomson said in an internal memorandum that under the rulebook Transpower was not accountable for security of supply, and it was not clear where that accountability rested.

The many-sided nature of the industry inevitably gave rise to issues that could not be resolved through consensus, he said. By contrast, the alternative, a Crown EGB, would have the power to take decisions.

In its appeal to the High Court, Transpower contends that under most parts of the rulebook it does not have enough votes to block rules which benefit other participants at its expense.

In some areas a Crown EGB would work in much the same way as an industry EGB, setting up industry working parties to address issues and endorse the outcome of that process.

But, Hodgson said, "some of the things that are too hard to negotiate, too hard to get unanimity on, could be done by regulation".

It was not yet clear which areas would require regulation, he said.

Legislative provision for a Crown EGB is already in the statute book.

Meanwhile, a Cabinet committee headed by Deputy Prime Minister Michael Cullen is looking at whether structural changes to the industry and the electricity market are needed to prevent supply shortages.

The process

* October 2000 - Energy Minister Pete Hodgson proposes Electricity Governance Board in response to Caygill Electricity Industry Inquiry. EGB forms part of Electricity Industry Bill tabled November 2000.

* EGB to consist of both industry and independent members, focused on interests of consumers.

* August 2001 - Bill passed.

* Bill allows the Government to establish an EGB if negative reports are received on the governance board established by the electricity sector; or if the industry is unable to establish a governance board.

* April 2002 - Commerce Commission rejects industry plan for self-regulation because it would give big energy companies too much control.

* October 2002 - Commission approves industry's modified plan. Seen as a better option than Government administration.

* New scheme requires "substantial majority" support in an industry referendum by May 14.