Beehive to blame when there's not enough electricity

By GEHAN GUNASEKARA*

There has been much talk about whether the market model can ensure the security of power supplies. The Government has encouraged the assumption that the "system" is, indeed, mainly to blame for today's crisis.

There has, however, been insufficient scrutiny of whether the Government could have done more, and what rights, legal or otherwise, consumers have.

The bulk of electricity generation is undertaken by large state-owned entities such as Genesis Power and Meridian Energy. These companies have legal rights and obligations under the 1986 State-Owned Enterprises Act, a statute enacted by the fourth Labour Government.

State enterprises are charged with being profitable organisations but, significantly, also have a duty to exhibit "a sense of social responsibility by having regard to the interests of the community".

In a leading 1990s case, the Privy Council stated that the duty to be socially responsible and the duty to be profitable were not mutually exclusive. In theory, consumers can hold a state enterprise to account for failing to act in a socially responsible manner. The main responsibility for monitoring the conduct of SOEs rests, however, with the shareholding Government ministers.

It might well be argued that a socially responsible power generator is one that builds excess (non-hydro-based) generating capacity, particularly as a result of our recent experiences with unusual weather patterns. Certainly, it was the approach taken by those responsible for Auckland's water supply in their decision to build a pipeline from the Waikato River.

No similar insurance policy has been forthcoming in the energy sector. It has been suggested that, because of the availability of vast coal reserves, all that is needed is another Huntly-style station, kept in reserve for dry years.

Of course, such an option may affect our Kyoto Protocol commitments and may not be favoured by the Government. But is it a valid excuse for the state generators to claim that they could not build such a station, or stations, because of such uncertainties?

The directors of the state-owned generators are appointed by and are responsible to the Government. In addition, the minister in charge of state-owned enterprises can direct that certain matters be included or omitted from the SOE's statement of corporate intent.

Ministers can, under the legislation, direct the SOE to undertake any non-commercial activity. But the legislation stipulates that the Government must compensate the enterprise for the cost of such conduct. In other words the Government must pick up the costs for any subsidy. The Government can also determine the amount of dividend that it is to receive from the enterprises.

Any directions given by a government to SOEs must be in writing and made public. The original goal was to achieve transparency. The Government retained control over the corporatised entities, but such control should be visible. Freedom of information laws also apply so that citizens can find out what instructions ministers have given to SOEs.

Against this backdrop, it is simply not tenable to argue that the state enterprises were not free to act to insure against future shortages. If any blame is to attach, it must be laid squarely at the feet of the Government, which all along had the power to issue directions to the SOEs about their conduct.

If directions are given, say to build a Huntly-style station, the Government may have to compensate the state generator for any resulting loss. But this would be a small price to pay, compared with the potential hardship to millions of consumers, not to mention the economic dislocation (with companies threatening to move overseas and the discouragement of new investors) caused by the crisis.

To retain large Budget surpluses, as the Government has tended to do, is foolish when a little new investment would have averted this crisis. Research has consistently shown that investment in infrastructure, such as roads and power stations, will more than pay for itself in economic returns.

In theory a government can also direct its state generators to undertake a stipulated portion of generation through alternative energy sources, such as wind generation.

Certainly, the Government had the legal powers to avert the present crisis, had it wished to do so.

* Gehan Gunasekara lectures in commercial law at Auckland University.