Cunliffe picks fight with power body boss

BUSINESSDESK: The Electricity Authority is under fire from Labour’s economic development spokesman David Cunliffe for taking electricity companies’ profits into account when deciding how competitive the sector has become.

Cunliffe sparred with the authority’s chairman, Brent Layton, on the issue, turning a low-key review of the EA’s first year of operation into an unusually testy exchange between an MP and a senior public servant.

At times during the exchange, both “begged to differ” with one another’s interpretation of how competition should be measured, with Cunliffe insisting the EA is using an outdated approach to measuring competitiveness and Layton insisting it was not and that Cunliffe doesn’t understand the Commerce Act.

The issue arose over the way the EA analyses industry statistics to deduce the net economic benefit to the nation as a whole from electricity industry participants’ behaviour.

Cunliffe asked why the EA continues to use a “producer surplus” measure when such measures were long ago dropped in considering competitive dynamics in the telecommunications sector, where it had been concluded that it was sufficient only to measure benefits to consumers for a net benefit calculation.

Layton disagreed, citing the recent Commerce Commission decision allowing a wool-scouring monopoly in New Zealand on the basis that, even if it reduced local competition, it would give the industry scale to compete against Chinese scours, their main competitor.

“If you don’t test both (producer and consumer benefits), then … you will end up treating the economy in a way that’s to the long term detriment of consumers,” Layton said.

Labour MP Clayton Cosgrove pressed Layton on whether the authority had done any analysis of the potential impact on electricity prices of partial privatisation.

Layton said no such analysis had been done, as the competitive settings in the market were unaffected by who owned the assets. Retail electricity retailing had become considerably more competitive, in part because of the authority’s “What’s My Number?” switching campaign, with some 25 percent of all electricity generation currently produced by private sector players.

Up to that point, the hearing had been something a back-slapping exercise noting the success of the campaign, which MPs said they would like to see target elderly consumers and people living in more remote areas which had not experienced such an uplift in competition.

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4 Comments & Questions

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For once, I agree with Cunliffe and Cosgrove. To suggest there is genuine competition in the electricity market is a very poor joke at the cost of businesses and residential customers alike.

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Clearly there is only limited competition in the electricity field.
Seems as if Cunliffe has a point.
WG

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Cunliffe only knows his arse from his nose by the smell of his finger. NZ inflicted 9 years of Labour onto itself and during that time Labour completely mis-managed the entire energy sector. They stalled any urgent upgrades of the National Grid – because their minority coalition partners didn’t want new pylons and “anything” built anywhere – resulting in Labour sitting on both stuck-out thumbs over this huge National issue. Resulting in major power outages due to lack of investment in the assets – where some plant are over 40 and 50 years old – well past their useful use by date – yet Labour continued to stall productive moves in this sector… including the $2Bn Project Aqua and numerous other examples.

Labour’s blinding incompetence during this time and many other times since as well as their marriage to the caustic and toxic unions, makes their comments a complete joke. Cunliffe might be trying to be the next Labour leader once Shearer gets the knife in the back – but that doesn’t make him anywhere near credible.

Him and Labour are about as effective, credible and as useful as an ashtray in a wind tunnel.

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The 'consumer surplus' interpretation has resulted in private sector investment in fibre networks in European telecoms markets grinding to a near halt anywhere where there is not already a competing cable industry.

Layton is correct - good regulation requires a careful balancing act between both producer and comsumer surplus, and short-term and long term incentives. Cheap prices now are no good if there is no supply security for tomorrow. Producers - not consumers - are the ones who are typically expected to invest in tomorrow's technlogy (except in telecoms, where having had the gains up front in low broadband prices on copper, consumers must now fund fibre too via government subsidies (i.e. income and consumption tax) because the private sector won't take the risk). This intervention is not necessary because the market has failed - rather it is because (bad) regulationprioritising consumer interests over all others has failed the market

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