Power authority head attacks Greens-Labour electricity plan

The Electricity Authority has delivered a powerful broadside to the Greens-Labour power play.

The political parties announced plans on the eve of the Mighty River Power partial privatisation to rip up the electricty market model and install a state-owned electricity buyer.

The leaders of both parties say the move is designed to cut household power bills.

The more immediate effect, however, has been to dampen the popularity – and share price, it seems – of the MRP float and to carve millions of dollars in value off other listed power companies.

In a speech in Auckland this morning, Electricity Authority chairman Brent Layton attacked the plans, saying they will lead to blackouts, less investment in renewable power projects and shrink the New Zealand economy.

He says the cost of a regulator transferring wealth under such a centralised power-buyer proposal would have a "chilling effect" on investment, which is likely to be "large, widespread and long-lived".

"Either the government will be forced to build future plants, and many other assets, or shortages of electricity and other services will be likely."

The authority is an independent Crown entity tasked with ensuring the efficient operation of the New Zealand electricity market, promoting industry competition "for the long-term benefit of consumers".

Dr Layton, a former New Zealand Institute of Economic Research chief executive, says a centralised power buyer would require a large bureacracy and an "army" of generator staff supported by consultants.

"Given the inefficiencies of the central decision-maker arrangement, the result will be to shrink the size of the New Zealand economy because more resources would be needed to operate the market than under the current arrangements for a less efficient outcome."

Pointed comments

The speech, circulated to media in advance, does not name the Greens or Labour, rather attributing the plans to electricity industry commentator Bryan Leyland.

But listeners to Dr Layton will be in no doubt where the comments are pointed, with the authority boss describing allegations consumers are paying too much for electricity and proposals each plant is paid its wholesale market offer price rather than the market clearing price.

Echoing criticism by market watchers, Dr Layton says this "pay-as-offered" model will lead to either increased inefficient spilling of renewable energy from hydro-electric dams or severe constraint on further investment in renewable generation projects, "even if it would be efficient to do so".

"The authority does not believe this outcome would be of long-term benefit to consumers."

He also busts the myth hydro-electricity generators are earning super-profits because their fuel – water – is free. Rather, it is offset by the cost of capital to build dams, he says.

Dr Layton says claims there is a price-fixing cartel by generators have been investigated by the Commerce Commission and has resulted in no prosecutions.

He says the Electricity Authority will continue "full steam ahead" with pro-competition initiatives in the electricity market, despite calls from generator-retailers to slow its regulatory work programme.

dwilliams@nbr.co.nz