Labour seeks to ride the beast of power competition

Thursday, 3 October 2019

The Government said the Electricity Price Review would benefit consumers but, a year on, doubts remain that all power companies have adopted the spirit of its recommendations.

OPINION: The Government is seeking to channel competition in the electricity market by retrofitting former national minister Max Bradford's market-oriented reforms to meet its own social agenda.

That agenda includes helping people in 'energy hardship', and hopefully reducing power bills overall, while tolerating the fact that its changes will create some 'losers' – mostly among wealthier groups in the population.

A bit like adding spectacles to the Hubble space telescope, its reform package layers complexity on to a sector that already seems extraordinarily intricate and fragmented for a country of a population of fewer than 5 million.

The public are being promised lower power prices as part of a suite of a changes to the electricity market - but how much and when remain up in the air.

Much of the immediate reaction to the Government's power plan has been positive.

* A run down on the Government power plan

The Government believes its rewiring of the electricity market will lead to lower power bills, but it plans to check on that after the election.

* 'Loyal' customers set to benefit from review but gas users may pay more**

Consumer NZ, for example, welcomed an end to 'misleading prompt-payment discounts', and new protections for vulnerable consumers.

Meridian Energy chief executive Neal Barclay said it was 'still reviewing the paper in full' but its initial view was that the Government's announcement was well-considered and struck a balance.

But the implications of some of the proposals may take a while to sink in.

A proposed 'market-making' rule and new information-disclosure obligations on 'gentailers' could curb generators' profits in the wholesale market and mean cheaper pricing for consumers.

But the mechanisms by which the Government has chosen to achieve its goals for a 'more level-playing field' are mostly far from direct.

That explains the need for the Government's promise to check after the election that they do indeed lead to cheaper bills as expected.

By swallowing the recommendations of its Electricity Price Review pretty much whole, it has left itself with one potential major political vulnerability.

The majority of consumers are on power plans that offer low fixed daily charges for electricity in return for a higher kilowatt-hour charge.

Many will be alarmed by the proposal to phase out the current requirement for power companies to offer such plans over a period of five years.

Max Bradford's reforms of the electricity market in the 1990s were controversial then and since, but the Government has chosen to build on them, rather than roll them back.

Some people on low-usage plans may benefit more from the overall package of reforms than they will lose from this particular change, it is true.

Electricity Networks Association boss Graeme Peters argued the 'transition away from the currently unfair low fixed-charge regulations is also a longer-term win for consumers'.

'This will remove the burden of the $170 million cross-subsidy that larger households – including those often in energy hardship – currently pay towards subsidising the costs of supplying electricity to those consumers currently on the low user fixed-charge,' he said.

Lines companies were regulated with a revenue cap, which meant they couldn't make more money overall from the change, he pointed out.

But phasing out low-usage plans can be expected to significantly adversely impact people who use gas to heat their home and hot water, and single people including pensioners living in flats.

Bach owners shouldn't be taking advantage of low fixed charge plans for their holiday homes, because they are supposed to only be available at a consumer's principal residential address.

Though if they are bending that rule, they could loose out too.

Most awkwardly for the Government, environmentally-minded people who have invested in home solar systems will be among the biggest losers.

A Government Policy Statement to the Electricity Authority and the Commerce Commission requiring them to take on board the Government's climate change objectives for the electricity industry may prove significant.

In some cases, what the Government takes with one hand, it may give back with another.

Solar-system owners may benefit from rules the Government is still separately working on that could allow them to sell electricity back into the grid at a better price.

And pensioners have already had a leg-up from the Government's winter energy payments.

The arguments for and against phasing out low-usage plans are varied and complex, and arguably the most sensible outcome might be a compromise that saw low-usage plans retained in a weakened form.

But it may be tempting for the National Party to simplify the issue and go in hard on this change, to embarrass the Government. It is the Opposition after all.

Stepping back a bit, some may rue the Government's proposals as a missed opportunity to roll-back Bradford's reforms.

The industry model that the previous National government established for the roll-out of ultrafast broadband might have been a way to make the electricity market easier to direct and, I'd argue, more efficient – without resorting to renationalisation.

But there is consolation prize that may placate progressives who would rather Labour had been more ambitious.

Energy Minister Megan Woods has said a Government Policy Statement will be sent to the Electricity Authority and the Commerce Commission requiring them to 'have regard to the Government's objectives for more energy sector innovation'.

By that it appears to mean decarbonisaton and climate change.

The significance of the directive might get largely overlooked amidst all the chatter about winners and losers and power bills, although BusinessNZ appears hot on to it.

It may prove important, especially as a yawning gap opens up between Labour and National's rhetoric on the design of practical climate change initiatives.

Its significance is also underlined by the fact it is the one area where the Government had the nerve to strike out beyond the otherwise fairly predictable recommendations made by its Electricity Price Review.