Power self-regulation likely

By BRIAN FALLOW

The Commerce Commission has given its conditional blessing to a self-regulatory structure for the electricity industry, despite consumer concerns that it entrenches the dominance of the generators.

The alternative is likely to be some form of Government regulator.

The commission has yet to release its reasons for approving the structure and associated rule book. But two of the conditions it has attached, after a process of consultation, to its authorisation are designed to address a fundamental consumer concern.

The concern is that the proposed Electricity Governance Board would be toothless and that the vertically integrated generator/retailers would dominate the voting on any proposed rule changes.

If what the board considers is a pro-competitive rule change that is to the public benefit is voted down, the board will be able to send it to an independent appeal body empowered to over-ride the vote.

The board will also be able to insist that a proposal is put to a vote if it believes that the relevant industry working party is blocking it or unduly delaying it.

Unusually, the commission has attached a sunset clause to its authorisation. It expires by March 31, 2007, or four years from the rulebook taking effect.

The proposal, which has been before the commission since December, has other hurdles to clear.

Rules, satisfactory to the commission, giving effect to its conditions have to be drafted.

The amended rulebook then has to be accepted by an unquantified "substantial" majority of the industry in a referendum, with voting split equally between suppliers, consumers and lines companies (including Transpower).

Transpower as the system operator needs to sign off on the new arrangements. If a major player refuses to sign the voluntary agreement, Transpower may not accept it for grid security reasons.

Comalco executive director Kerry McDonald said it was unlikely that Comalco, which consumes about a sixth of New Zealand's electricity, would sign up. Major Electricity Users Group executive director Ralph Matthes said MEUG was sceptical that the whole package would benefit either consumers or the country as a whole. "Control of the drafting of the rules still remains with a majority of the generators."

He was also critical of the commission's decision on process grounds. It's preliminary decision had been to reject the proposal on the grounds that the public benefits did not outweigh the costs.

"The commission had to make conditions just to get it over the threshold. The applicant [the Electricity Governance Establishment Committee chaired by David Caygill] should have been told ... . 'Come back when you have sorted out something that clearly exceeds the benefit/cost test'," Matthes said.

Commission chairman John Belgrave said several points of concern had been put up to the commission during its public hearing. "It seemed desirable to say these, in the commission's view, would be solutions to those issues and put those out for consultation."