Incoming minister tested by inquiry

By Richard Braddell

Between the lines


The new Government's energy minister, Pete Hodgson, already has his hands full getting a planned inquiry into the electricity sector completed by autumn.

Its key concerns are the need for regulation of monopoly lines companies before an agreement with them expires in July, security of supply vis-a-vis investment, barriers to competition, disclosure rules and whether an industry specific regulator is necessary.

But following the sector's major restructuring over the last 18 months, the question remains as to why an inquiry is needed now.

The most obvious answer is that in spite of reform, there is still nothing bar the threat of government intervention stopping the new electricity lines companies from raising prices as they see fit. After rejecting the previous Government's attempts to solve the problem, it is now Labour's turn to do better.

While the lines companies have been blamed for high domestic electricity prices, the new energy retailing companies have also yet to prove themselves. After eight months of retail competition, domestic consumers are only just starting to look to other energy suppliers.

Early adapters have not always found the going easy because their old suppliers have not had the facilities or the will to manage a switch, particularly when the job may have cost the suppliers as much as they would make in a year out of the departing customer.

Even so, the market does seem to be working better with nearly a quarter of the 49,000 customers who switched in the first eight months doing so in November.

Meanwhile, the retail energy suppliers have only limited incentive to slash prices since they need every cent to justify the extravagant amounts -- between $500 and $1000 a customer -- they paid in a frenzied grab when the power companies were broken up. But with net margins as fine as $20 to $60 a customer, they have even more incentive not to lose those customers.

The clear message is that to justify the acquisition costs, energy retailers will have to find other ways of making money out of their customers.

The Government has other concerns beyond its inquiry. Its concern that hydro lakes are managed so the lights never go out prompted a suggestion that it might reamalgamate the three baby ECNZs.

There are alternatives, perhaps amending their statements of corporate intent to ensure storage lakes are managed conservatively.

At present hydro lakes are brimful, and the problem is not urgent.

But as Mr Hodgson says: "Damaging the competitive framework of the generation sector would be a bad thing, running out of electricity would be a very bad thing."