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Energy Policy Must Be Aligned With Growth



"The present electricity crisis demonstrates that too many of the government's policies are incompatible with its stated priority of economic growth", the executive director of the Business Roundtable, Roger Kerr, said today.

"It is intolerable that businesses, as well as households, are facing disruption and high prices only two years after a similar crisis, with no satisfactory remedy in sight. This indicates serious mismanagement.

"The government says it wants to achieve a sustained economic growth rate of 4 percent or more, meaning the economy would be nearly 50 percent larger in 10 years' time.

"This could require electricity production to be perhaps a third higher than it is today. Expanding generating and transmission capacity at the necessary rate requires major policy changes to allow investment to happen.

"In the short term, businesses and households must respond to the government's calls to conserve power. Higher prices should be passed through to households so that they have a better incentive to conserve power and businesses and jobs are not put unnecessarily at risk. It is pleasing that the government appears to be exploring short-term options for boosting supplies. However, it is important that it respects private property rights and enhances long-term incentives to invest.

"After the crisis has passed there should be a formal inquiry to identify its causes and the actions needed to prevent a recurrence. The government owns 75 percent of the electricity industry and is heavily involved as a regulator. Relevant ministers, SOE boards and managements should be held accountable for shortcomings. The planned parliamentary select committee inquiry is not an adequate vehicle for this purpose."

Mr Kerr said that the current electricity system was an unsatisfactory half-way house between a centrally planned system and a more normal market. "This cannot deliver good outcomes. Recent years have seen increasing ad hoc interventions and reports of further actual and prospective interventions are alarming.

"Instead, the thrust of policy should be to reduce government involvement in the sector and remove unwarranted regulations and barriers to investment in new generating capacity. This agenda should include:

• changes to the Resource Management Act that go well beyond current proposals, and to the Kyoto Protocol policy package;

• a coordinated review of other policies that are blocking new energy supplies including conservation, marine reserves, local government, transport and the role of the Commerce Commission;

• much greater protection for private property rights in order to reduce business uncertainty (eg over cogeneration) and attract private investment;

• improvements to market rules and the operation of Transpower; and

• a substantial transfer of Crown-owned energy assets to private ownership.
"Proposals for another round of basic restructuring of the sector or to impose price controls are misguided. They would only add to uncertainty and create further disincentives to investment.

"New Zealand has no inherent shortage of energy supplies. The sector's performance has improved markedly relative to the former control-and-command regime. However, it has been subject to repeated political interference and successive governments have not taken action to remove bottlenecks.

"For nearly four years the business community has been saying that too many of the government's policies are not conducive to growth. Increasing regulation across the board is choking off business investment. There needs to be substantial adjustments to policies affecting the energy sector to align them with the government's plans to get New Zealand back into the top half of the OECD income rankings", Mr Kerr concluded.


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