Generation cost key to reform—suppliers

Press, 13 April 1989, Page 4

Generation cost key to reform—suppliers

Restructuring of the electricity industry must begin with competition in electricity generation, according to the Electricity Supply Association. The association, which represents power boards, municipal electricity departments, and other electricity retailers, says up to 75 per cent of an average industrial electricity bill goes on the cost of generation. “So if we want to improve the international competitiveness of New Zealand industry, it’s logical to look at this area first,” said the president of the E.S.A., Mr Eric Johnston. The E.S.A.’s position, released on Tuesday, is partly a response to the report of Putnam, Hayes, and Bartlett, consultant to the Government’s electricity restructuring task force. Its report recommends leaving all Electricorp production’s generation plant in the same hands if and when Electricorp is privatised. But the E.S.A. believes that Electricorp generation should be split into at least three companies —

North Island hydro, South Island hydro, and thermal — or more, with each river system going to separate hands. It also advocates Stateowned enterprise status for the generating companies, rather than private ownership. According to Putnam, Hayes, and Bartlett, greater efficiency in the industry could bring dramatic price reductions, the average North Island tariff falling from 6.2 c a unit to 4.5 c a unit. The E.S.A. agreed, but thought the consultant’s recommendations were not necessarily the way to achieve the savings, said an E.S.A. spokesman, Mr John Boshier, acting general manager of the Wellington M.E.D. Putnam, Hayes, and Bartlett, which called for greater competition at the retail level, “do not have the competition in the right place,” said Mr Boshier. The consultants said there should be no franchise areas for retail suppliers, but that was more an imposition of the terms of reference for its

study than its conclusion, he said. At the retail level, the E.S.A. called for an end to cross-subsidisation between customers, more competition for large industrial and commercial customers, publication of prices, and a reduction in the number of power boards and M.E.D.s. Phasing out cross-subsi-disation could add 30 per cent or about $5 a week to domestic consumers' bills, while rural customers, with their longdistance reticulation costs largely subsidised by urban power users, could be worse hit. Those increases would be easlier to take if balanced by reductions in wholesale prices. The E.S.A. agreed that the electricity transmission system, now run by Transpower, should operate “transparently,” taking electricity from generators to customers at fixed, published prices, and remain publicly owned. Generating companies should only be allowed to retail electricity if the generation was on a competitive basis.