Editorial: Electricity reform

OPINION: The reform of the electricity sector announced by the Government this week is the biggest since the creation of the present system in the early 1990s.

The changes are designed to make the system work as it should have done from the outset. That it has not been working is clear – prices to consumers have risen by three times the rate of inflation in the last nine years. Changes made by Labour did little to improve the sector and, if anything, worsened it.

Having seen Labour botch the job, National has now put forward its attempt to remedy the system's flaws. The Energy Minister, Gerry Brownlee, has wisely pitched his expectations low. He is not promising that prices will fall, merely that there will be more competition and that prices will be more stable. Fortunately, the signs are that this package may well deliver that.

Creating an electricity market that works – that is, one that ensures a stable supply of electricity at the appropriate price for all users, industrial and domestic – is no easy task. It is universally recognised that, in a complex modern society, State command and control is a long-run recipe for disaster. But setting up a competitive market is by no means straightforward either. The industry is one where there is a natural tendency towards a monopoly, or at best only a few suppliers, to the disadvantage of customers.

The aim of the latest reforms is to make the market more genuinely competitive. The changes largely follow the recommendations of an expert review headed by an economist, Dr Brent Layton, and should be effective in bringing about a better performance of the market and therefore less opportunity for large operators to attain and misuse market power.

One method of doing this is by the establishment of an effective electricity hedge market. Previous attempts to do this have failed but this time the minister has assured that the Government will make it happen. This is crucial, and the Government says it is prepared to back its words with action, by providing that if the mechanism has not developed within 12 months of the establishment of a new Electricity Authority, the authority will have the power to impose one.

The provision of $15 million to pay for a campaign to encourage customers to switch retailers if they are unhappy with their power bills is more directly aimed at pleasing consumers. At the moment, customers may be aware of the availability of better deals but the prospect of fees, delays and sheer inertia deter many from doing so. Making customers aware that the facility to switch retailers is accessible, and imposing a requirement that retailers must meet a target of 75 per cent of customers switched within three days, and the rest within 10 days, may help make customer mobility more frequent.

The aim of an electricity market is to bring about a secure supply at prices that are appropriate to give a reasonable return for the suppliers, provide for the economical use of electricity now and ensure investment for future needs. Consumers should not have unrealistic expectations about prices. The cost of providing for future generation, for instance, is rising. But these reforms should be effective in better meeting the aims of an efficient market.

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