Reining in the electricity giants

This week a Herald series has exposed the chaos in the power industry. CHRIS DANIELS and JOSIE CLARKE look at plans to fix the mess.


"It's a case of saying: you fix it - or we'll fix you."

So says Energy Minister Pete Hodgson of his grand plans for the electricity industry.

In an extreme case of the carrot-and-stick approach, he has told the industry what he wants - fair pricing, self-regulation and a way for consumers to complain effectively about power companies.

There will be a new ombudsman to hear complaints, a new governance board dominated by people representing consumers, and a ceiling on fixed charges for low power users.

While the industry carries out these suggestions, Mr Hodgson will be arming himself with an impressive arsenal of powers allowing him to force the changes through if he is not happy.

"I don't want to use the legislation," he says. What the Government wants is "industry solutions where possible, regulation where necessary."

The new powers to regulate come in the form of the Electricity Industry Bill, expected to become law in March or April.

The former Prime Minister and constitutional lawyer Sir Geoffrey Palmer has already raised concerns over the "unprecedented" powers it gives the Energy Minister.

"It seems to me to be designed to avoid judicial challenge and parliamentary scrutiny both at the same time," he told National Radio.

Asked if it was an example of the Government treading softly but carrying a big stick, Sir Geoffrey said it was "one of the biggest legislative sticks we've seen for a long time."

Big companies and households share many concerns when it comes to the industry, according to the executive director of the Major Electricity Users' group, Ralph Matthes.

He said there was no attempt to control local lines companies, which were monopolies and could "ramp up prices" when they liked.

With the introduction of non-industry players to controlling bodies like the proposed Electricity Governance Board, the already-improving power companies would quickly become better.

The board will be chaired and dominated by what Mr Hodgson calls "independent members." He says a key measure of its success will be its actions "in advancing the interests of domestic consumers."

One part of Labour's plan that will attract most opposition from the power companies and the National Party is the order that each retailer must provide a package offering power with a fixed monthly charge of no more than 10 per cent of the average New Zealand customer's bill.

Mr Hodgson said many small users who approached companies to ask for cheaper electricity had been told they were just not wanted.

The 10 per cent fixed-rate tariff was a method of ensuring companies did not simply "cherry pick" the big power users who paid bills on time.

Requiring each company to provide this rate meant the benefits of competition would be available to every household, however small.

This attitude is not widely shared in the power companies.

Such a directive assumed that people who used a small amount of power were on low incomes, says Trustpower spokesman Graeme Purches.

People with large families in badly insulated homes would be subsidising small households.

Charges from the local monopoly lines companies made up the bulk of the fixed charge, and the Government was putting no obligation on them to help keep these down - "It is regulating the competitive side of the business but leaving the monopolies alone."

The proposed powers were draconian, but nothing compared with what had actually happened under National's Energy Minister, Max Bradford, said Mr Purches.

During his time, the industry had been forced to sell a large part of its business, while developing a cheap way for customers to switch between companies.

Mr Bradford, who has already admitted his reforms did not go entirely to plan, described the Hodgson governance idea as weird.

"To have a governance structure that puts what the industry can and can't do in the hands of a non-elected body of people who don't own the industry is weird and without precedent."

The new bill was "a bit of a wimp-out" that left monopoly lines companies able to charge any price they liked, with the possible threat of price controls if it got out of hand.

All the companies should be put under regulation, then rewarded for looking after consumers, while Mr Hodgson wanted only to regulate when there was misbehaviour.

Mr Bradford, who claims his personal power bill dropped by around 12 per cent after he switched to First Electric in Rotorua, said the reforms had not been all bad.

Outside a few provincial areas, most people had access to significantly cheaper power if they wanted it.

Consumer advocate Molly Melhuish said the problem with the Hodgson bill was its similarity to Mr Bradford's reforms. The one "present" was the low tariff for pensioners and others using little power, but any money they saved would be taken in other ways.

"Our power system is difficult, and that means that regulation needs to be properly and carefully designed. You can't get it by guesswork."

The industry and the Government say the worst is behind. But the damage done in the past 20 months has left consumers unconvinced, with many wanting Mr Hodgson to start swinging his new big stick.

Herald Online feature:
Overload - our troubled power companies

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