Dialogue: Reforms pushing up price of power for the people

By MOLLY MELHUISH*

Electricity users need to start listening to their instincts. We can no longer trust the platitudes mouthed by public figures promoting their own "fix" to our troubled power system.

The Herald's recent series of articles shows conclusively that competition has failed the small electricity consumer.

Some are being disconnected for not paying bills because their payments were swallowed up by the companies' faulty information systems.

Most face long waiting times to have problems sorted out through the call centres.

All are paying higher power prices to pay for competition that we never wanted anyway.

The articles quote former Energy Minister Max Bradford as "admitting things did not go according to plan and consumers were the losers."

But he says that he was "acting on the best advice at the time, and everybody said, 'look, we'll be okay."' Rubbish.

Certainly government officials, together with Mr Bradford's friends, the major electricity users and some big power companies, said that we would be okay. But his 1998 Electricity Industry Reform Act was criticised more widely - by both consumers and many companies - than perhaps any other recent legislation.

The Herald articles also report David Caygill, who headed the recent electricity inquiry, as believing that things are improving.

He wrongly blames the directives of the previous National Government for the power shambles.

These forced companies not only to sell half of their businesses, but at the same time to compete with each other in retailing electricity.

The chief executive of the Consumers Institute, David Russell, wants to give electricity retailers three months to fix their systems before requesting the Government to step in on behalf of residential consumers.

But his independence is in question as he is part of Mr Caygill's "fix."

Mr Russell is the spokesman for Consumer Coalition '93, which includes the Major Electricity Users group, the Manufacturers Federation, and Federated Farmers. This group is taking an active part in Mr Caygill's $2 million project to set up a governance system for electricity.

After reporting comments from many dissatisfied customers, and the excuses made by spokespeople from various sides, the Herald concluded: "The sudden change to a free market was too much, too quick."

I consider that all the commentators quoted so far are wrong. The speed of the reforms was not the problem, but rather the basic concept that underpinned them.

Power for Our Future has warned for many years that electricity is no ordinary competitive business. Different retailers cannot compete on quality because electrons are all the same. They can compete only on price.

But a private company that discounts prices for all its customers cannot make a profit. Therefore, it will have to price-discriminate.

This means a power retailer must charge its lowest prices for its most profitable consumers - major electricity users, big office blocks, chains of supermarkets or service stations, and so on. Energy efficiency will give the least dollar savings for these consumers, yet they could have best afforded to invest in saving energy.

Retailers have to charge small consumers more and more as competition bites. This means increased fixed charges, and new fees for services that were formerly free of charge.

A major economic analysis by the American Public Power Association shows exactly how this works. But the embattled New Zealand electricity consumer could have saved it the trouble - our experience over the past decade has proved their points in every detail.

The days of cheap power and good service are not some way off - they are no more than a fond memory. Attempts to "fix" the problems piecemeal will simply create new problems.

For example, the Greens claim a victory in the promise that every major retailer will be required to offer a tariff with a fixed charge no higher than about 30c a day. But companies find other ways to make money off small consumers; they will charge much more for each kilowatt-hour and higher fees for services.

Only a fundamental change can restore sustainable and affordable electricity supply to all New Zealanders. These objectives need to be written into new regulations - a free market cannot deliver them.

The people who designed the failed reforms and light-handed regulation cannot be expected to work towards new objectives. They can only make token changes to the present system, which does not even deliver their single objective of economic efficiency.

Regulation needs to promote cooperation between different suppliers as well as between suppliers and consumers. The very idea would horrify the originators of the Commerce Act, as well as the electricity reforms. But it is a physical necessity for reliable electricity supply.

Indeed, a coordinated electricity system is more important in New Zealand than in any other First World country, as an overseas engineer told me. Horrified by the huge fluctuations in voltage and frequency caused by our large and widely separated generators and loads, he said a catastrophic blackout could happen any time.

Successful regulation can be created only by people who are intimately familiar with our electricity system. It must tread the fine line between cooperation (which is necessary) and planning (which can be manipulated politically).

The role of politicians and sectoral interest groups must be confined to setting objectives, and approving proposals following truly independent advice on their merits.

David Caygill's proposals for the governance of our electricity system fail all these criteria.

* Molly Melhuish is a spokeswoman for Power for Our Future.

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