Editorial: Power price control won't benefit poor

Energy Minister Pete Hodgson is not an instinctive regulator of the electricity market. His public statements suggest he understands that price controls and the like can have unintended consequences that may be economically damaging or socially unjust.

But he serves in a Cabinet that has overruled his caution before and it seems to have done so again. Late last week Mr Hodgson imposed a cap on the fixed rate that electricity suppliers can charge low users.

Household power bills commonly contain two elements: a fixed charge to cover the costs of maintaining lines and other overheads, and a variable charge reflecting the units used.

For low users the bulk of their bill is made up of the fixed charge and consequently they save proportionately less of their total bill when they manage to reduce their consumption further.

It is not clear why this should be of such concern. Low users, like everyone else, ought to pay the full cost of a maintaining their connection to the supply. Services such as electricity, water, telephones and the like have a value to the consumer that is not solely governed by their actual consumption.

And it is only natural that low users will not benefit greatly from further reductions in consumption but any reward they get through unit charges is fair. Why do they need an extra incentive to conserve?

This is an odd time of year, anyway, to be encouraging low users to use still less. If, as the Government appears to believe, low users are predominantly pensioners and the poor, they ought to be keeping warm in this weather.

This new cap on their fixed charge gives them a double-incentive to scrimp on power, because if they now let their usage rise they risk losing the benefit of the cap. It applies only to consumers who use up to an average of 8000kwh a year.

That is by no means the only perverse consequence of this partial price control. If the Government means to assist the poor this is a clumsy way to go about it. Many low users of electricity are not poor at all.

Many are likely to be working people living alone, or working couples without dependants. These people eat out frequently, travel and socialise.

They can be hard to catch at home. They could be beneficiaries of this low tariff. Likewise, the owners of holiday homes to which power companies must maintain a supply no matter how seldom it is used.

On the other side of the coin, many poor households will not be able to take advantage of the regulation. Those with families, especially teenagers, will struggle to keep their power consumption low enough to qualify for the cap on their fixed charge.

Surely the Government knows how long a teenage shower can take? As always, it is much better to give social assistance through the welfare system which can make payments to those whose circumstances are known.

As it is, those lower-income families, like everyone else who uses more than 8000kwh a year, will be subsidising the "dinkies" (double income, no kids), the bach owners and others who qualify for the cap.

For the electricity companies will recover their losses on the supply to low users by spreading the cost over the rest of their customers. If the Government imagines this regulation will advance social justice it is dreaming.

At the same time as it capped low users' fixed charge the Government set a levy on all consumers for the cost of its new regulatory agency, the Electricity Commission. Households will pay an average of $18.20 a year for the security of supply that the commission is to buy.

That would be worth the peace of mind if households really were at risk of losing supply. But the real beneficiaries of this levy will be big industrial users with access to the spot market.

When hydro sources are ample big consumers benefit from low spot prices; when lakes run low they pay a high price, or reduce production. Now they have been given a one-way bet. When lakes run low the commission will switch on reserve generation, financed by this levy.

It is one more needless subsidy in a service that was, until quite recently, moving away from all that.