Powerco sees merit in regulation

By CHRIS DANIELS

One of New Zealand's biggest electricity lines companies has issued a round endorsement of a Commerce Commission idea for regulating its monopoly business.

Powerco, the third-biggest network company, with lines operations in Taranaki, the Central North Island, Manawatu and Wairarapa, could face a style of Government regulation never before seen in New Zealand.

The Commerce Commission idea, presented in a discussion paper released this week, would impose a variety of thresholds on the lines companies and the national grid operator, Transpower.

The thresholds - relating to excess profits, customer satisfaction, efficiency and the sharing of gains - are designed to allow businesses to operate relatively unfettered.

Only when thresholds are breached would the commission step in and impose price controls. Powerco, in its self-styled "Power Plan" ideas for regulation, has argued for any regulation to be applied across the entire electricity industry, throwing a blanket over generators, retailers and lines companies alike. Chief executive Steven Boulton is enthusiastic about the commission's discussion document and the potential he sees in it for cheap, non-coercive regulation.

He said that just because there was a potential to charge monopoly prices did not mean it was happening. Unjustified price hikes were happening at the retail end of the electricity industry, where competition was apparently occurring.

"If we were a monopoly business, you would see our prices going up 10, 20, 30 per cent," he said. "That's not happening - our prices are either stable or going down and the ones who are claiming a competitive environment are the ones going up."

Many of New Zealand's 30 lines companies are owned by community trusts that pass on profits to their local communities.

The nation's second-biggest lines company, Vector, is owned by a publicly elected body, the Auckland Energy Consumer Trust, which like many of the other trusts pays dividends to power consumers.

The executive secretary of the Energy Trusts of New Zealand, Peter O'Brien, said trusts were pleased that the commission's discussion paper was designed to allow them freedom to run their businesses efficiently.

Profits earned by trust-owned companies were returned to the community, so there was no point in their earning excessive profits.

Yesterday, part of Energy Minister Pete Hodgson's threat to put more competition into the retail side of the industry came a step closer with the release of a report investigating the establishment of a "mandatory electricity hedge market".

Hodgson has threatened to force power generators to offer up for tender a fixed ratio of all their production into a fixed contract market, where retailers can buy it.

The idea behind such a system is that it would allow retail companies that do not have much generation to compete more fairly with "vertically integrated" power companies that have both retail customers and power stations.

Hodgson met the chief executives of the five big electricity generator-retailers on March 6 and asked them to report back early next month on steps they would take to improve competition.

Auckland University academic Dr John Small looked into how such a system could be organised, and said a compulsory hedging regime seemed a good idea but it needed more study.

Hodgson said he was still concerned that retail competition was not as effective as it could be.