Energy Research Centre does Government's job

26 August 2003

Energy Research Centre does Government's job

Powerco has welcomed the creation of an energy research centre based at the Auckland Business School, saying it would undertake a task desperately needed in New Zealand.

Chief Executive Steven Boulton said he hoped the research centre would alleviate the dire shortage of independent information and analysis on the industry in New Zealand.

"Governments throughout the world have, to date, based much of their policy development and regulatory mechanisms on poor information or non-existent analysis. The need for government policy is understood, but the collateral damage to the economy and the business environment from regulation based on inadequate analysis can be substantial," he said.

"Most of the work conducted by officials has relied on foreign economic trends or stand-alone academic analysis. This type of approach has been undertaken without reviewing either historical performance or current achievement by the business sector.

"It has been developed independent of any real understanding about the impact on the business environment and the resultant consequences for the national economy.

"As a result, the electricity network sector, for example, is being put through the regulatory wringer without any evidence or work that established a need for it."

Real price reductions in the network sector have been achieved during the past five years, lines charges are generally at 80 per cent of the level of those in Australia and the average return on investment in the sector is around six or seven per cent (even though it is based on an asset base calculation that is still referring to standard costs last reviewed in 1995).

"There seems to be only a limited understanding of the long-term economic danger posed to the nation by a strict price setting regime. The recent US debacle with major supply blackouts is indicative of the failings of too strong a regulatory approach," said Mr Boulton.

"In fact, the current legislation driving the Commerce Commission's work on establishing a price setting regime for the lines network wasn't based on any national interest test or cost/benefit analysis. The Commission has not been given any instructions to conduct a broad national interest test.

"Our own assessment concludes that imposing price controls will result in a situation where companies will not be able to commercially support asset renewal or new asset investment.

"Not only will that starve the economy of electricity vital to a modern economy, but the reliance on maintaining old equipment creates a dangerous situation of impending network failure," Mr Boulton said.

He said he hoped the Centre would look promptly at the overall lines sector performance, in a national economic sense rather than in an academic, micro-economic vacuum before any regulatory decisions became irreversible.

Powerco is a publicly listed company, listing on the NZSE in December 2000 and on the NZSE40 index on December 2, 2002. Powerco is New Zealand's second largest electricity lines company, with 290,000 electricity consumer connections in the North Island and the largest gas distribution company with 100,000 consumer connections.

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