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Cunliffe spars with power body head on electricity profits

Thursday 22nd March 2012

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The Electricity Authority is under fire from Labour’s economic development spokesman David Cunliffe for taking electricity companies’ profits into account when deciding how competitive the sector has become.

Cunliffe sparred with the authority’s chairman, Brent Layton, on the issue, turning a low-key review of the EA’s first year of operation into an unusually testy exchange between an MP and a senior public servant.

At times during the exchange, both “begged to differ” with one another’s interpretation of how competition should be measured, with Cunliffe insisting the EA is using an outdated approach to measuring competitiveness and Layton insisting it was not and that Cunliffe doesn’t understand the Commerce Act.

The issue arose over the way the EA analyses industry statistics to deduce the net economic benefit to the nation as a whole from electricity industry participants’ behaviour.

Cunliffe asked why the EA continues to use a “producer surplus” measure when such measures were long ago dropped in considering competitive dynamics in the telecommunications sector, where it had been concluded that it was sufficient only to measure benefits to consumers for a net benefit calculation.

Layton disagreed, citing the recent Commerce Commission decision allowing a wool-scouring monopoly in New Zealand on the basis that, even if it reduced local competition, it would give the industry scale to compete against Chinese scours, their main competitor.

“If you don’t test both (producer and consumer benefits), then … you will end up treating the economy in a way that’s to the long term detriment of consumers,” Layton said.

Labour MP Clayton Cosgrove pressed Layton on whether the authority had done any analysis of the potential impact on electricity prices of partial privatisation.

Layton said no such analysis had been done, as the competitive settings in the market were unaffected by who owned the assets.  Retail electricity retailing had become considerably more competitive, in part because of the authority’s “What’s My Number?” switching campaign, with some 25 percent of all electricity generation currently produced by private sector players.

Up to that point, the hearing had been something a back-slapping exercise noting the success of the campaign, which MPs said they would like to see target elderly consumers and people living in more remote areas which had not experienced such an uplift in competition.

BusinessDesk.co.nz

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