Perhaps the most remarkable thing about Energy Minister Gerry Brownlee’s electricity reform package is to think what might have been. At the beginning of 2009, Brownlee’s approach to the sector was instinctively combative and unsympathetic. As a headstrong Minister in a new Govt, there was every chance he could have swayed the Cabinet towards a much more fundamental and interventionist course than he eventually chose.

This is partly because his Cabinet colleagues prevailed in preferring reforms which favour market outcomes rather than making the Govt any more politically responsible for the messy realities of one of the country’s least-loved groups of businesses. In the end, Brownlee got his wish to include a physical rearrangement of the SOEs’ generating assets - an issue held up in Cabinet Committee discussions right to the end of the year as other more senior colleagues argued against it - but this was the high-point of his interventions. It was important officials talked him out of his early enthusiasm for the findings of the so-called Wolak report and its allegations of massive over-charging over the years - a highly contestable analysis at best.

What is even more significant, however, is Brownlee is no longer under any illusions electricity prices will keep on rising to meet a combination of increasing monopoly network charges, transmission upgrade costs, and the fact current prices are too low to support investment in major new generation, which the Electricity Commission warns (see below) is a fast-looming issue again.

The key to Brownlee’s position is he believes with some justification the asset swaps and new hedging arrangements will lead to more vigorous retail competition, which should keep a lid on the size of the tariff increases which are already starting to creep through after the best part of a year where the big generator-retailers made hardly any changes for fear of upsetting the Minister. However, he now accepts the case electricity charges need to rise or there will be a sure risk to security of supply within three to five years. He also knows carbon pricing will further exacerbate such increases.

What remains to be seen is whether it is residential customers who continue to bear the brunt of higher tariffs, or whether the “gen-tailers” will find a way to smear cost increases more effectively through SME and industrial tariffs, which have grown much less quickly than residential tariffs in the last ten years.

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