ELECTRICITY WATCHDOG DEFENDS ITSELF
20 February 2009
David Caygill, Electricity CommissionerMatthew Hooton makes two startling assertions in his “salvo” on electricity (NBR, Feb 13). He claims the Electricity Commission’ “main objective seems to have been trying to prove its bureaucrats are smarter than the people at Transpower, Contact and in the SOEs.” and that the commission’ “main contribution has been to prevent investment in new generation and transmission projects …”
As a statement of how the world appears to Mr Hooton, his first assertion is impossible to refute. But it is quite unfair to the commission’ staff. And it flies in the face of the commission’ statutory objectives –“to ensure that electricity is produced and delivered in an efficient, fair, reliable, and environmentally sustainable manner …”which have been set by Parliament and spelled out in detail by successive governments.
Mr Hooton’s second claim –hat the commission has prevented investment in new generation and transmission –is both more serious and easier to refute. In the first place, the commission has no role in the approval of new electricity generation.
Typically this requires some form of resource management consent from district and/or regional councils –but no approval from central government, much less the Electricity Commission.
Certainly the commission does review proposed transmission investments –for the reason Mr Hooton gave: that the grid (unlike generation) is a natural monopoly. Consumers are asked to pay for it but have no choice. So the commission’s role is to ensure that what they are asked to pay for is reasonable.
To achieve this, the commission uses a classic cost/benefit test to compare an investment proposed by Transpower to any alternatives which also meet the same need and yet comply with good engineering industry practice.
Far from having prevented transmission investment, in the last three years the commission has approved over $2 billion expenditure in a grid currently valued at $2.5 billion. In other words, investment in the electricity grid is set to double (along with the transmission component in electricity bills) over the next 5-7 years.
So far the commission has said “no” to just two projects, one of which was resubmitted in amended form and approved, and the other of which is still the subject of further hearings.
Mr Hooton also questions the performance of the wholesale electricity market. This is a large topic that touches on our core business. The commission is concerned that consumers have faced price increases, and some businesses supply issues in low inflow years. The system survived a severe test last winter but from this experience the commission is looking at how the market arrangements can be improved.
Mr Hooton describes them as “entirely state-contrived”–as distinct from “rue markets” that “merge spontaneously.” In fact, New Zealand’ wholesale electricity market was established in 1996 by the electricity industry by means of a private contract. It was only in 2003, following industry disagreement (notably about transmission investment and pricing) that the government set aside the private market in favour of regulation by a public agency –the system used around the world to govern such arrangements.
At a time when such systems are understandably being questioned, one common and proper yardstick is: do they produce timely investment
Mr Hooton’s conclusion is that “the existing market will never deliver the investment necessary.” The commission begs to differ.
Although we are not responsible for investment in generation, we observe 546MW is currently under construction. Another 1200MW has been consented but not yet built. A further 1000MW has been consented, but is under appeal. And consents have been sought but not yet heard for no less than a further 2200 MW.
This grand total, approaching 5000MW, would increase by more than half the country’s generation capacity –compared with the doubling in the value of the transmission system that is also underway.
A simple examination of the facts establishes that both generation and transmission investments are occurring.
The electricity system must continue to evolve to meet the challenges of a changing energy world.
But there is no reason to conclude that our system is “ramshackle” nor that investment (either in generation or transmission) has been prevented –by the commission or anyone else.
(c) 2009 The National Business Review
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