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MEUG: Are consumers going to be betrayed?


Tuesday, 13 June 2000
For immediate release

Media release by the Major Electricity Users’ Group (MEUG)

Contact: Terrence Currie, MEUG, phone Wellington (04) 385 2945 or 021 348 595

Are consumers going to be betrayed?

The Report of the Inquiry into the Electricity Industry represents one step forward and ten steps backward for consumers according to the Chairman of the Major Electricity Users Group Terrence Currie. He said, “the monopolies within the industry have been let off scot free with price control still just a threat.” “Consumers wanted price control to be imposed immediately”. ”Instead they have a recommendation that an ombudsman scheme be introduced along with support for the inclusion of electricity into the Consumers Guarantee Act and a recalibration of lines companies assets. “Consumers will feel betrayed as this Inquiry was set up by a Government which while in opposition campaigned vigorously to have a CPI-X regime introduced. Draft legislation to impose price controls was opposed on the grounds that it did not go far enough. The Minister of Energy must be disappointed that the Inquiry Panel did not recommend that the monopolies be subject to price control, or that price reductions be mandated now.
Many consumers feel that since corporatisation in 1992/93 they have been exploited by their line companies. Last year they thought those companies were going to be placed under price control. Now they may wait forever. It will be the Commerce Commission that decides whether any line company will have price controls imposed. Given the appeal procedures available against Commerce Commission decisions the likely outcome is that even if a lines company blatantly increases its prices it is unlikely to be penalised.
The Commerce Commission will be required to undertake a recalibration of lines company asset values. MEUG has been particularly critical of the application by lines companies of the Optimised Deprival Valuation (ODV) methodology so an independent one off recalibration of monopoly line asset values is welcomed. No timing for this recommendation has been included but consumers would expect this exercise to be undertaken immediately. What will be essential in this process is for some stakeholder or consumer participation in this recalibration process rather than allowing all calculations to be black-boxed.
Most consumers will find the Inquiry’s Report bizarre in that the competitive activities within the industry, namely the generators and retailers, will be compelled to join a new wholesale market structure thereby eliminating the opportunities to bypass the market. The costs of participating in that market will prevent super competitive bilateral contracts that are the hallmark of non-NZEM trading.
The Inquiry has recommended the establishment of a new industry governance structure to oversee many critical activities within the electricity sector. This industry board is to comprise a majority of independent representatives but will simply end up being elected by the industry for the industry. The only industry structure that has end user consumers on its governance structure as of right is the Grid Security Committee (to manage MACQS) which has three consumer representatives. That Committee has now been folded into this new Industry Board with the report mentioning independents not commercial, domestic or industrial consumers. Consumer interests according to the panel can be addressed through the overall guiding principles. It again seems strange that direct representation of consumers has been relegated to participation on industry working groups.
The Inquiry Report does support the establishment of an energy sector ombudsman, which could handle consumer complaints over electricity and gas issues. Consumers have been pushing for an electricity ombudsman for some time so the Inquiry’s endorsement of this scheme may create the necessary momentum to make some rapid progress.
Consumers have also been pushing to have electricity included in the Consumer Guarantee Act so the support of the Panel is also welcome.
MEUG believes that instead of CPI-X being immediately imposed consumers have ended up with a new Industry Governance structure with no guaranteed representation. Therefore the Report will be viewed with deep disappointment and an acute sense of betrayal.

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