Ex-minister runs $7m power flop

By JAMES GARDINER

The electricity industry's failed attempt at self-regulation cost more than $7 million, and former Labour Cabinet minister David Caygill was one of the biggest beneficiaries.

Mr Caygill, a former finance minister who did not stand in Labour's 1990 election loss, was hired to sort out problems in the electricity industry when Labour returned to power in 1999.

In 2000, he headed the electricity inquiry Energy Minister Pete Hodgson had promised before the election, and was paid $106,500 for 71 days' work.

Mr Hodgson said at the time that Mr Caygill's $1500-a-day fee was significantly less than his normal rate as a partner in Wellington law firm Buddle Findlay.

The inquiry recommended a continuation of market policies - competition between power companies to generate power and supply it to customers - with a strong push for self-regulation rather than the Government setting the rules.

Critics said the plan, to run the industry by legal contract rather than statutory regulation, was doomed to failure.

But the Government agreed to let the industry find its own solution.

That gave Mr Caygill another job, chairing the Electricity Governance Establishment Committee.

Mr Hodgson said yesterday that he would now establish a new body to govern the industry as the nation faces its second winter of power shortages in three years.

"I want to thank David Caygill, in particular, for his strenuous attempts to lead the process to a successful conclusion," Mr Hodgson said.

"He brought considerable skill and commitment to a large, complex and difficult task."

Mr Caygill said he would not play a role in the new body, but the work his group had done should be of assistance.

He said he was disappointed consumers had rejected the plan for self-governance.

The committee devised a 700-page rulebook for the conduct of the electricity industry, then asked market participants to vote on it.

It hoped for a substantial majority but got only 40 per cent support.

Consumer representatives rejected it out of hand.

About half the money for the committees Mr Caygill oversaw came from the national grid company, state-owned Transpower.

The rest came from the other industry participants, mainly the big power-generation companies, of which three out of four are also state-owned.

In the end, all the money came from one source - New Zealanders' power bills.

Commenting on the committee Mr Caygill chaired, project manager Lee Wilson said the members were paid $1500 a day.

As well, Mr Caygill was being paid consultancy fees by another body called the Grid Security Committee.

Mr Caygill said he did not know how much he had been paid.

Asked if it would have been half of the $7 million, he said "nothing like that".

Next week, Prime Minister Helen Clark is due to announce further moves to deal with the power crisis.

But any radical transformation of the electricity industry is unlikely.

Tuesday's announcement will be of a way to prevent power companies junking old, inefficient generating plants that could be kept in reserve for dry years.

One method of doing this will be for the Government to pay power generators to keep capacity free for use only in dry years.

Helen Clark has already said the Government's plan is designed to ensure standby generating capacity is available for dry years.

She and Mr Hodgson will have to work out a way of getting this capacity without damaging the operations of the wholesale electricity market.

- Additional reporting, Chris Daniels