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Lower Prices Puts Energy Security At Risk

Media Release
November 10th 2004


Energy sector regulation focused on short term gains to consumers at the expense of improving the network leads to power outages, says a visiting energy economist.

Margaret Beardow is visiting from Australia at the invitation of the Electricity Networks Association (ENA). The ENA represents the interests of the 24 organisations that distribute electricity to consumers throughout New Zealand.

Mrs Beardow said "widespread power outages in many countries including the UK, the US, and Australia are making governments rethink their approach to regulating energy networks. New Zealand has the opportunity to benefit from their mistakes.

"Countries are realising that if their energy regulatory frameworks focus on lower prices and not on longer term sustainability of supply, they place infrastructure at risk."

As the energy sector is so critical to a country's growth, regulation decisions must give equal consideration to long term stability and investment, Mrs Beardow said.

New Zealand regulators had the opportunity to heed the hard lessons of other countries and ensure that the regulation implemented here put it at the front, not the rear, of regulatory practice.

"With this in mind, the Ministry for Economic Development's decision to review the Commerce Commission's decision over gas regulation should be welcomed by the industry."

Mrs Beardow said in Australia, past decisions of regulators were now regarded as overly aggressive. When outages did occur it was the industry and its management, and not the regulators that forced the cost reductions, that took the blame.

The Australian Productivity Commission released a report on gas regulation this year that found its current Gas Access Regime could distort investment through cost-based price regulation and high monitoring costs which were of no benefit to the economy.

"It would be a shame if New Zealand followed down the same path as Australia only to realise that it would end up costing the public dearly."

Mrs Beardow is addressing the ENA on Wednesday November 10th.


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