Powerful arguments shape lines policies

By Brian Fallow

Between the lines


Call it a Clayton's policy if you like. Labour's approach in one key area - the regulation of the monopoly lines side of the electricity industry - is to have an inquiry and then come up with a policy.

If it won the election, it would hold an inquiry to conclude by next autumn whether and, if warranted, how to impose price control on the electricity line companies.

The issue is how to prevent these natural monopolies from exploiting their control over what typically amounts to about a third of a residential consumer's power bill.

Undoubtedly this is an area where the maxim "regulate in haste, repent at leisure" applies. Labour helped stymie what it considered Max Bradford's politically panicked, bull-at-a-gate attempt to impose price control on the line companies this year. The Bradford proposal was to peg electricity line charges to the consumer price index minus a factor of "X" per cent.

CPI-X is a hobble on how much a line company can increase its charges each year. It ensures that line charges fall in real terms by a factor X, which should be struck at a level which gives the company an incentive to become more efficient so it can maintain, or even raise, its profits as prices fall.

Labour believed that the Commerce Commission and the Ministry of Commerce had insufficient information to arrive at a fair, sensible or legally defensible value for X.

Moreover, line companies vary widely not only in size but also in terms such as how much of their network consists of rural lines with few customers, how much of it is underground, and how much capital expenditure they need to maintain security of supply.

The capital expenditure issues are especially difficult, as Labour's energy spokesman, Pete Hodgson, admits.

They involve on one hand private property rights and on the other public interest. There is a natural tendency, he says, for shareholders to put pressure on network companies to take risks with system security by keeping a tight lid on expenses to enhance profitability.

Negotiating such issues between company representatives and Government officials would require a lot of information and time, compounded by the fact that there are still dozens of line companies.

Labour's inquiry would also look at whether electricity retailers are playing anti-competitive games with meters, and what sort of structure a regulatory regime should have.

Its timeframe is tight. The danger is that come next autumn all it would have to show would be a longer and more refined list of the things regulators would need to know to do their job.

Meanwhile, time would be running out on the only thing standing between consumers and the threat of higher line charges: the gentleman's agreement by the companies not to raise charges. It expires on July 1.

At that stage things could get messy.