THE PRESS MONDAY, JUNE 2, 1986. Better shake for power users

Press, 2 June 1986, Page 12

THE PRESS MONDAY, JUNE 2, 1986. Better shake for power users

In the biggest shake-up of this country’s public services and departments, much more thought needs to be given to the fundamental ideas that lie beneath the changes. As a basic rule, no-one can seriously challenge the proposition that taxpayers should not have to pay a dollar more for these services than can be justified. The justification will always be a matter of public and Parliamentary argument: an argument about efficiency, about the social justice or need for expenditure, about the alternative ways of providing the services, or about whether they should be offered at all.

On the cost of administering licences for activities that are deemed to require public supervision or allocation, the question is one of who benefits: the community that is protecting itself, and to such a degree as it dictates by regulations, or the user of the licence? The answer on who shall pay for State interference with individual action, or on who shall pay for a licence that may assign some special privilege, will depend on how each case is judged.

Much less debatable is the kind of change that is being applied to the Electricity Division of the Ministry of Energy, one of the State’s agencies that is going to become a State-owned corporation. The Government has decreed that this corporation will attain greater efficiency, and still provide the required service, by being accountable to Ministers. Eventually, it is argued, the corporation will be competing in a deregulated market for energy supplies. The theory is fine. The likely practice does not look so fine. If the consumers of energy could switch readily from one fuel to another, from electricity to coal, or from gas to electricity, without huge capital costs, the practice might look healthier. In fact, most consumers can do no such thing. Then there are such considerations as prevail in Christchurch: gas is not readily available; coal, for domestic use, is environmentally out; electricity is a virtual monopoly. Then it must be acknowledged that the price of imported energy is itself regulated by politics and by suppliers and world events. Perhaps the Government is privately delighted that this country is heading, at a price, towards much greater self-sufficiency in liquid fuels. The notion that the Electricity Corporation will be under much competitive restraint is an illusion. When the next oil crisis hits the world, electricity prices could be under no restraint at all if the Government wants to maximise dividends and its tax take from electricity. Returning to the basic rule, it may be agreed by all that taxpayers should not subsidise electricity any more than they should subsidise the cost of refining petrol or producing gas for motorists, or subsidise the mining or transport of coal for industry or, in an ideal world, of coal for export. The most beneficial production of electricity will be achieved without subsidy. It will also be achieved without the corporation’s having to pay dividends or tax. The taxpayers would deserve dividends if they contributed the capital cost of the electricity system. Instead, the taxpayers get interest on their money, or the Government gets interest on the money it has to borrow to provide capital for the division. History has

not made taxpayers shareholders in the division; it has made electricity consumers the effective shareholders in a co-operative administered by the State. The only argument for taxing the corporation is that it should compete on an even footing with other providers of energy. For the most part, it will not be competing at all, simply because most consumers have no way of turning to an alternative source of energy in their homes, offices, or factories. In fact, the only obvious reason why the Government is requiring dividends from the corporation is because it wants the corporation to make a taxable profit. Otherwise, it could simply put a levy on electricity, as it does — for other good reasons — upon the sale of petrol.

For many decades, the State’s electricity supply has been a co-operative enterprise — a consumers’ co-operative run by a department of the State. Of course, this cooperative should pay a fair interest rate on money lent to it by the State, or by anyone else, to finance its own development. If the corporation is going to have a real competitive effect on other energy producers — and it can certainly have some effect — it should continue to be a co-operative: such profits as it makes will work to the electricity consumers’ benefit, not the taxpayers’ benefit. The Government’s lust for other sources of cash to reduce taxation is all very well. Taxpayers will enjoy this idea, too; or rather, some will enjoy it more than others, according to the rate of tax they pay. In the end, as electricity prices rise to provide dividends and tax, the State will be induced to pay out more to non-taxpayers to recompense welfare beneficiaries for the higher cost of electricity. Thus electricity consumers would be subsidising other electricity consumers. Given its pre-eminent position as a supplier, the corporation could well have money running out of its ears, most of it falling into the Treasury bucket. This is not a way to get more efficiency into the production of electricity; it is not a way to put the most competitive price before the consumers, or to restrain manufacturing costs in this country. The most economical supply of electricity will be had from the most rigorous engineering management that is consistent with maintaining supply and • meeting increases in demand. Competition, for the most part, means very little in this sphere of energy production. The control should be kept in the hands of the State using, if necessary, a body of highly skilled engineering auditors empowered to supervise the work of the corporation on the consumers’ behalf.

The power of this body need not be restricted to the corporation: it might be , equally extended to the retail suppliers, such as the Christchurch City Council. The retailers are also monopoly suppliers and the electoral process that produces the power supply authorities should not be the only force that governs their performance. Assuming that competition will control an electrical monster is a mistake by the Government.