The Electricity Commission is portrayed as a fish out of water in just about every area of its current remit, in a report prepared for Business NZ’s Large Companies Group by the economic consultancy, LECG. Among three authors of the report is former Treasury Secretary and ACT Parliamentary candidate Graham Scott, whose deeply critical assessment of the EC’s unhappy mix of governance and regulatory duties almost derailed its establishment, in 2003. Since then, the EC’s annual budget has grown from $26.5m to $93m, including levies for energy efficiency activity which LECG suggests may amount to an “unauthorised tax.” The report’s release coincides with the National Power Conference, in Auckland this week. It has caught attention from Energy Minister Gerry Brownlee as he casts about for ways to show the Govt is taking a new approach to perceived electricity industry failings without simply setting up new ways to fail. This is one of the key concerns expressed in the report: continual regulatory tinkering with electricity market arrangements means “there is little hope of the current arrangements converging to a stable set of regulations.”

LECG says “there is a high opportunity cost to these constant regulatory adjustments. There is also a heightened prospect that changes are being made to regulations in the electricity sector to overcome the effects of previous regulations, at the risk of ever-mounting distortions to sector performance.”

The report lists five key areas of enduring electricity policy requirements, then sets about demolishing the need for the EC in any of these areas. With regard to security of supply, it suggests Transpower (the System Operator) would be better placed than the EC to handle supply and demand forecasting, and identifying barriers to supply matching demand, while the Minister of Energy should have defined powers to intervene during supply shortages, where market failure clearly justifies a political response. On economically efficient investment and operation of the wholesale and retail electricity markets, LECG suggests industry-based working groups and the Commerce Commission would be best to develop trading rules and assessing the competitive impacts of the rules respectively.

Efficient investment in and use of the long-life assets involved in electricity supply was currently compromised by inconsistent and limited appeals provisions for EC and CC decisions, and LECG saw no role for the EC in responding to community and social policy objectives. These would be best handled by the Ministries for Social Development and Economic Development. Nor was there a role for the EC in energy efficiency policy, given the Energy Efficiency and Conservation Authority’s existence, while the MED and Treasury should be sufficient to advise on a stable investment climate.

LECG found “the EC emerges as part of the problem considering its orientation, its authorising legislation, and the complexity of its roles and functions and the unsatisfactory allocation of roles in the industry generally.” The report backs market-based electricity market arrangements, stating the EC is unable to meet its statutory objective of “ensuring security of supply” since it has only one power station (Whirinaki) and no fuel supplies. “The EC would require much greater central planning powers…(which) would mean abandoning the current structure of competing generators, and hence the model supported by every recent review as being the option for the country. To our knowledge, no centrally managed electricity system has ever delivered security of supply.” A managed transition away from the EC is recommended.

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