The chief executive of the New Plymouth-headquartered company says the proposals will jeopardise the industry's ability to invest in and maintain this country's lines infrastructure. He argues that the proposals are unlawful, as they amount to universal price control.
The combination of price, profit and quality thresholds in the proposed regulatory system design did not provide for proper sharing of benefits between shareholders and consumers. "Lines companies will have no incentive to fund new customer connections. The proposals will also delay or stall funding of investment in much-needed distributed generation connections, at a time when more generation is desperately needed."
Capital investment to replace aging lines infrastructure was also at risk, as companies would be stretched to meet unrealistic targets, which seemed to have been implemented with little or no reference to realistic sector performance, Boulton added.
"The information provided in the draft proposal still does not identify excessive profits across the industry. The lines sector has demonstrated responsible price constraint over the last five years, with average prices remaining flat. The lines sector has also delivered improved reliability during the same period.
"The regulatory proposal is a hybrid scheme, the likes of which is not in use anywhere else in the world," Boulton said.
Contrary to popular belief, the gains from the proposed regime for residential consumers would be minimal or non-existent. At the current rate of inflation, the average benefit for consumers in the fifth year of the regime would be only $NZ2.50 per month. As well, no cost benefit analysis had been conducted to determine whether the cost of the proposed regulatory regime would be less than this consumer benefit.
Powerco, New Zealand's second largest lines company, was encouraging a regulatory impact study (RIS) to be done to ensure a balanced stakeholder approach, which met the government's economic targets.
"New Zealand's lines charges are among the lowest in the world - despite low customer densities and pressures to maintain similar urban and rural line charges. Lines companies are confused as to why they are being singled out for heavy regulation," said Boulton, citing last month's PricewaterhouseCoopers report which said Kiwi lines companies had reduced their charges by a median of 12.6%, in real terms, and improved security of supply during the last six years.
There would be capital flight from the sector (a fact already backed up by market reaction to the proposed regime). There were no overseas investors remaining in the sector, yet encouraging overseas investment remained fundamental to the growth of the national economy.
"A meltdown of the electricity infrastructure will not be in the best interests of consumers and the economy. Maintaining investment in electricity infrastructure is essential for the Government's growth targets. By seeking the short-term gain of lower prices, the infrastructure will be run down in the long term," Boulton concluded.
The commission has said it is not proposing anything draconian, "the thresholds are a screening mechanism to identify electricity lines businesses whose performance may warrant closer scrutiny. Thresholds are not an instrument of control."
Submissions on the commission's "thresholds" scheme for regulating the 20-plus monopoly lines companies closed last Friday and the commission is to hold a four-day conference on its proposed regime in Wellington from March 10.
