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Howard's End: Echoes Of California In Power Crisis

There is a power crisis, with rolling blackouts in Victoria, South Australia, California and, it now seems likely, New Zealand. The deregulation of the electricity markets was not deregulation at all, but restructuring accompanied by re-regulation. Pete Hodgson's power crisis meeting tomorrow should consider that. Maree Howard writes.

California has already faced the same problems with its electricity that we face. That is, while the economy demanded more and more electricity, no new power plants had been built for over 12 years. The impending "crisis" was entirely foreseeable.

They are more fortunate, however, in that they can import power from neighbouring states - at a price, of course.

Far from creating a free-wheeling and open market place, the break-up of the California electricity industry forced power companies of the time to split and sell-off either transmission or generation, while the government retained significant control.

Their government forced electricity suppliers to use the state-run Power Exchange as their main source of electricity and set up an artificial "spot price" system that made the highest price bid in a given time period the prevailing price.

They left wholesale prices uncontrolled but froze consumer prices in the earlier split-up and sell-off deals, so that when the wholesale prices spiked - as was bound to happen under the government's distribution system - the electricity companies couldn't pass on the increases to consumers and they literally lost billions of dollars while the government made billions.

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They refused to let consumer prices - the most effective method of inducing conservation - rise to reflect the wholesale prices which had become artificially high due to government intervention.

California has now fast-tracked new power station construction and 12 have already been given preliminary approval.

They have also focused on what they can now do to increase the likelihood of ample electricity over the long-term by articulating a vision of moving toward competition that will alleviate concern of regulatory intervention.

The message that business was hearing from their government was that officialdom regarded them as either an enemy or a target.

The political instinct - to find another to blame, to sound tough - held sway until business told government in no uncertain terms that carrots work better than sticks and if government continued they could likely expect to see an exodus of business and corporate headquarters from California.

Business leaders also told government that companies thinking of locating new branches or operations in California would think twice before committing to a state when electricity supplies were unreliable and officials viewed business as a handy whipping-boy.

What Energy Minister Pete Hodgson needs to say tomorrow is something like this:

"We've got serious supply, distribution and marketing problems and the government has had to take a larger role than it would have liked. But we view our involvement as a temporary role. Our goal is an electricity industry that is open, competitive and market-oriented."

" We want suppliers to know that while we will enforce health, safety and environmental standards we are streamlining the permitting process and won't engage in or allow petty harassment."

" We want consumers to have choices so that they can shop around for genuine electricity supplies which meets their needs and nourishes their values - which is the best way to bring prices down."

"We have learned that a true and open marketplace can co-ordinate supply and demand better than government, involvement, intervention and supervision."

" Over time we want an open, competitive, free, private and healthy electricity industry."

Without such a crisis statement from Mr Hodgson to reassure the public and the business community along with providing a cohesive long-term vision for electricity supplies, it will be difficult to avoid dire long-term consequences for the country.

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