Mark Reynolds
Between the lines
You have to wonder whether Max Bradford checks the top of his newspaper every morning, just to make sure a new day has dawned. Because judging by an announcement he made yesterday, time seems to be standing still for the minister responsible for energy.
This time last
year, Mr Bradford said he would impose a sinking lid on electricity line charges. He said the Government was possibly looking at introducing a "CPI minus X" formula to control lines charges. That would limit rises to the rate of inflation, minus an "X" factor to give line companies an incentive to become more efficient.
Companies would be subject to "robust" regulation to ensure they did not exploit their network monopolies, he said.
To enact that threat, the Commerce Commission would be empowered to apply price control.
Mr Bradford said a year ago that the Government had not completed its thinking about what the thresholds for imposing price control should be. He said the existing system was to cap the permitted rate of return on a line business' assets, but conceded that system was not ideal because asset valuations could be manipulated to justify a price movement.
The alternative would be to put downward pressure on the cost side, he said. "I would be surprised if we didn't have some sort of residual or reserve regulation that allowed the Commerce Commission and/or the Minister of Energy to selectively or comprehensively apply that CPI-X regime," he said.
Now fast-forward to yesterday. Mr Bradford announced "strict" controls on electricity line prices. Exactly what those controls would be had not yet been determined, but they might involve a "CPI minus X" regime to control prices, because current asset-based controls were not working.
Mr Bradford said he did not want to pre-empt exactly how the price control regime might work. Instead, he had passed the task of designing new rules to the Commerce Commission, which had until the end of this year to complete the new regime.
Some network operators actually welcomed Mr Bradford's announcement yesterday. "The issues to be worked through are very complex and a great deal of work will need to go into the select committee process," said Christchurch-based lines company Orion said.
Perhaps that is fine for a company that does not want change, but continued legislative delays are not helpful to the industry as a whole.
The prolonged uncertainty is delaying decision-making by many power companies. Potential network mergers have been put on hold, because there has been no point creating economies of scale if all that benefit must be passed on to consumers rather than shareholders.
What efficient operators in the power industry want is some certainty in legislation - and Mr Bradford has, again, only threatened that.