More Electricity Regulation Will Stifle Investment

20 October 2003

Media Release

More electricity regulation will stifle investment in electricity infrastructure

Powerco is seeking further clarification from the Ministry of Economic Development and Energy Minister Pete Hodgson with regard to a recent discussion paper on "distributed generation" or DG.

The paper supports commercial small-scale generators obtaining free connections to regional lines companies, and/or that lines companies should provide the capital funding to support these connections.

These generation projects typically become embedded into the local lines network as the means for conveying the electricity generated back to consumers and the national grid, so are known as "distributed generation" or DG.

A number of opportunities to develop such projects exist throughout New Zealand, particularly in the lower North Island, where lines company Powerco has the largest geographical coverage.

Powerco Chief Executive Steven Boulton said the Ministry of Economic Development proposal advances the view that lines companies and their customers should provide various forms of subsidies to ensure improved profit outcomes for the generators.

"This is another unnecessary regulatory impost. There is no evidence that this approach is needed.

"Powerco already has a number of distributed generators operating within its networks and last week Trustpower signed a commercial contract to extend the Tararua windfarm - a larger type of DG. Commercial operators can achieve these investment outcomes without regulation," Mr Boulton said

In each of these projects, the generator pays a capital contribution towards any line extension or augmentation required to meet the capacity of the generating unit so that there is no cost impost to consumers for existing line company connections.

The generators also make contributions for the use and ongoing maintenance of these assets so that lines company customers are not subsidising the profits of the generators.

Yet the discussion paper suggests a new approach from "regulatory making" to "regulatory taking".

"This is a classic example of Government appropriating property rights through regulation," Mr Boulton said.

"Why should lines company consumers have to pay for DG connections to improve the profits of commercial generators? Where will this appropriation of private property rights stop? Will landowners and farmers whose land these windfarms sit on be next?"

Mr Boulton said that cross subsidisation, through property rights appropriation between various sectors of the electricity industry, will lead to poor decision making in favour of uneconomic projects.

"The power that the Minister has to introduce regulations with the force of law is frightening.

"No debate in Parliament, no debate by Select Committees, no debate by the public and no right of appeal by affected companies - it just happens.

"With no real checks and balances, the Government simply adds another costly impost to the ongoing regulatory invasiveness burdening the electricity sector," Mr Boulton said.

Mr Boulton said the regulatory costs being imposed on New Zealanders has accelerated markedly in the past two - three years.

"The burden that regulatory creep is placing on lines company consumers has no quantified public benefit - in fact no national economic cost/benefit test was ever applied before the regulatory regime was designed.

"The sector is now forced to provide financial resources to meet these increasing regulatory demands when these funds should be invested in improving the networks to meet customers' growing needs for digital-age electricity supply.

"We are one of the world's smallest economies with the additional disadvantage of geographical isolation. Yet we will have one of the worlds most invasive and expensive regulatory regimes drawing away funds from where they are most needed - investment in new generation, transmission and lines networks.

"We can have either the world's leading theoretical regulatory design or we can have a business environment to attract ongoing investment in electricity infrastructure, but we can't have both.

"The Government must decide which of the two is more important for the good of New Zealanders and our economy," said Mr Boulton

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