Editorial: Dangers in new broom's energy policy

Energy Minister Gerry Brownlee appears to approach political problems like a bull at a gate. In Opposition, he showed little interest in the economics of electricity investment and seemed hell-bent on bulldozing any obstacle to the maximum security of supply. Even the Labour Government's guarantor of supply, the Electricity Commission, was too fastidious for Mr Brownlee's comfort.

Few might have bet on its survival in the minister's first formal edict on electricity governance issued last week, particularly with the failure of a major Auckland substation still fresh in the memory and the view of a credit agency last month that the country has under-invested in transmission. But the commission has survived, albeit with its wings clipped.

The minister's draft policy statement largely removes the commission's power to interfere in national grid projects of less than $20 million. The grid operator, Transpower, has 233 projects in that category under way, which include new transformers. The number suggests the commission has not been a hindrance to minor upgrades in the network, but major bottlenecks such as the Cook Strait cable are a different story.

The new policy statement also restricts the commission's ability to hold up investments of more than $20 million by insisting that Transpower considers alternatives. In future, any alternative solutions suggested by the commission must have a high probability of proceeding without Government financial assistance and allow the network's reliability to be maintained if the alternative is delayed or does not proceed.

Hence, for example, if the commission wants Transpower to consider more power generation near Auckland as an alternative to putting up larger pylons across the Waikato, the commission will need to be certain that investors stand ready to build or expand the local generating plants. Wishful thinking will no longer do.

Mr Brownlee's no-nonsense approach to the power supply has seen practically all of the previous Government's climate-change and other environmental goals ruled out - literally. His draft policy statement is a re-publication of the previous Government's policy with lines ruled through passages referring to its "energy efficiency and conservation strategy", its "transformation agenda", "sustainable development programme", its emissions trading scheme and wind generation.

The new broom sweeps practically everything aside, putting the focus almost solely on security of supply by means of streamlining improvements to the national grid. The minister is obliged by law to consult the commission on its policy statement and has given it and other "stakeholders" two weeks to comment. But the direction seems set.

The danger in this single-minded approach to the power supply is that economic considerations will be trampled underfoot, too. The Electricity Commission is supposed to do nothing to undermine the market beyond maintaining a reserve generating capacity for dry spells. The level of investment in electricity transmission is best determined by the interplay of supply and demand, which means the decisions of competing generators and retailers on one side, and empowered consumers on the other.

As the market monitor, the commission's main task should continue to ensure network projects reflect the scale and configuration of transmission that suppliers and users are willing to pay for. If they face the true costs of total security of supply, they might think it higher than it is worth.