How best to make use of surplus power?

Press, 7 May 1980, Page 18

How best to make use of surplus power?

The debate ;■ of the economics of more aluminium smelters seems to have degenerated into an exchange of accusations of “amateurism.” Both the Prime Min-, ister and Professor P. van Moeseke, of Otago University, who recently published a report on the smelter proposals, have accused the other side of amateurism in their approach, and it would seem on the surface that only one of them can be right. By default, since : the Prime Minister is in possession of more detailed information than the Professor, we are expected to believe his must be the correct conclusion, namely that the proposals . stand on their own feet on terms of merit, and that he (Professor van Moeseke) is wrong” (“The Press,”- April 23). Unfortunately, the debate is not as simple as that, because the two sides are clearly working from different bases; in other words, the debate is really about the relative merits of chalk and cheese. Unless the public can be given all the necessary information to be able to sort out the chalk from the cheese, the result, will be widespread misunderstanding, ignorance and resentment, and the Government’s case will (rightly or wrongly) be won by default. The Treasury statement . that you can use alternative forms of arithmetic and get an entirely different answer from, his (Professor van Moeseke’s) arithmetic” (“The Press,” April 23) is seriously misleading. The truth is that one can use the same form of arithmetic to “prove” any-, thing, if one selects the raw data carefully. The issue, in this debate is' not one of arithmetic, however. The

real issue is whether the Treasury on the one hand, or Professor van Moeseke on the other, have made the correct assumptions in terms of their basic data, and whether their economic assessments have been based on the same definitions of criteria such as “the national interest.” Both parties should define the term “national interest” clearly and unambiguously. For example, how many New Zealand dollars is it worth spending to obtain a dollar of overseas exchange? Can the political and the economic advantages of the proposals be separated, so that we can see just who is assumed to be benefiting from them? In referring to the fact that the Government was taking the advice of its official advisers “. . . who are much closer to it than he is,” the Prime Minister conveniently bypasses the point that, by definition, the Treasury officials are responsible to him alone as Minister of Finance, and that they carry out their economic assessments according to ground rules approved by him. It is therefore a circular argument to claim that the results of such assessments prove anything, unless the ground rules themselves have been subjected to comprehensive public scrutiny — which is not the case. The Minister of Trade and Industry has referred to areas in which his officials believe Professor van Moeseke’s study is deficient, particularly the world price of aluminium, and the costs of capital investment, raw materials and electricity consumption. Since the Minister has not given us details of his own figures, we cannot assess whether the alleged‘errors would have a large or a small effect on the results of the study,. .

However, it is stretching our credibility to claim that such errors are sufficient to change the results of an assessment, from . . an economic disaster . . .” with “.. . domestic input of $202.8 million against net foreign earnings of $72.2 million” (“The Press,” April 8) into a project which “. . . stands on its own feet, on terms of merit . ...” and “. . . was in the country’s best interests” ("The Press,” April 23). It is well to remember here, that there is a long history of over-optimistic economic forecasting by the New Zealand Government. A lot has been made in recent months of New Zealand’s “surplus” of “cheap power.’’ While it is correct to claim that water spilling over the hydro dams could be used now to generate electricity at a very low marginal cost, this is an extremely misleading claim taken by itself. The overheads and capital charges of this surplus power are already being borne by all the other electricity consumers. These consumers are also paying substantial amounts towards the new power stations which would not be needed, were it not for the electricity-intensive

industries being planned to mop up the current surplus. In looking for new industries, it is therefore important for the community to realise that, once the surplus has been taken up, any further increases in demand will have to be satisfied by new power stations, whose generating cost is very much higher (by a factor of about two, possibly more) than those whose surplus is currently available. The question must then be asked: does the Government plan to charge the full national cost of electricity to these industries over their entire life, or are they to be charged only the present low marginal cost? Or are they to be sold their power cheaply at first, and be subject to a large price rise in, say, three or four years, when they have used up the surplus and have to start taking “new” electricity from the power stations now under construction? Unless these industries are treated like other consumers, and “. . . pay the true costs of producing and distributing energy with adequate contributions to capital works” (Minister of Energy, quoted in. “The Press,” October 31, 1979) they will be a continu-

ing financial burden on all other electricity consumers and taxpayers. Equally, unless these markets pay the “true costs” it is hard to believe that there is any justification in economic terms, for continuation of the present extremely expensive hydro-electric power station construction programme. The people of New Zealand are already paying about 30 per cent of their power bills towards servicing the billion dollars already overinvested in massive and largely unnecessary power stations which are the result of major past errors by our power planners. To enter into long-term contracts to sell the resulting surplus power at anything less than its full cost is to compound the errors of the past, and load still more debts on to the long-suffering electricity consumers and taxpayers. Since there is clearly little or no surplus cheap power available for other users, particularly domestic consumers in the South Island, would it not be more honest to transfer the funding and operation of these new power stations from the Ministry of Energy (Vote: Energy) to a new vote (Vote: National Development)? By this means, it would be made quite clear that the new industries were going to be paying their own way. There would also be a major benefit to all other consumers, in that the substantial costs of constructing the power stations would be taken off the backs of consumers who are unlikely ever to need the power. The best way to overcome all of these problems, and in particular that of confusing people “. . . by constant public statements of enthusiastic amateurs” (the Prime Minister, “The Press,” April 23)

is for the Government to “come clean” about its studies, and release the details of assumptions and calculations made by the Treasury and Trade and Industry officials. If their methods are correct, the “amateurs” will be silenced: if not. the sooner the methods are corrected and the conclusions and plans put right, the better it will be for the economic health of this country. The atmosphere of secrecy in which vital decisions such as those in the liquid fuels and electricity-intensive industry areas are being made is more than a little sinister. There are large numbers of highly skilled economists, accountants and engineers working outside the Government in New Zealand. This is a resource of talent and expertise which could be harnessed to help the politicians and officials make better decisions — but they are largely powerless without the key information. Nevertheless, the work done by people such as Professor van Moeseke and his colleagues is still of great value, because it alerts us to the possibility of serious errors being made by the Government. We must hope that he and others will not be discouraged by the attacks on his study, from carrying out further work on the economics of Government policies. Thd search for truth that is at the very centre of university research often produces results that are not welcomed by those in power. In a participatory democracy, there is only one answer to all of this that would be in the country’s best interests, and that is to share the information and get a consensus from the people.

DR N. J. PEET, a senior lecturer in the Department of Chemical Engineering at the University of Canterbury, compares two views of what New Zealand should be doing with the apparent surplus of electricity in the South Island. He poses questions about definition of the “national interest” and the price which any new industry might be charged for electricity. Replies to Dr Peet’s questions have been received from the Minister of Energy (Mr Birch), and the Minister of Trade and Industry (Mr AdamsSchneider). These will be printed on this page tomorrow.