Editorial

With two chilling decisions on frosty afternoon, the electricity industry blew its case for being above the need for reform.

The sudden power cuts around the country, which endangered lives, have also put the sector’s regulator, the Electricity Authority, out in the cold when it comes to public opinion. Four months ago, the EA declared New Zealand’s electricity system a globally admired network that was doing the job it was designed for. If that is still true, then it either needs an urgent performance review or a new job description.

The Government appeared shocked to find that major generator Genesis declined to play it safe by increasing generation, despite receiving several hours’ notice from grid operator Transpower that the situation was critical.

Genesis’ insistence that it didn’t have time to get its Huntly turbine cranked up will come in for tough scrutiny. The Government clearly suspects Genesis acted out of commercial self-interest. However, Transpower’s admission that it could have done a better job of communicating its aims also needs attention. And consumers certainly deserve answers as to why the message did not get through to them in enough time that they could actually prepare for cuts or alleviate them.

Energy Minister Megan Woods has attempted to go on the front foot. “If we are going to have a market system providing security of supply, then that market needs to deliver.”

However, industry critics note the Government has created no incentive for the generators to hold extra capacity in the event of such emergencies. Academics, customers and new entrants to the industry have for years pointed to the sector’s structural incentives to optimise prices and profits and manipulate the wholesale market. In perhaps the worst example, Meridian was caught in 2019 deliberately spilling water from hydro dams to artificially inflate prices by about $80 million. Meridian said it did this to “manage its risks”. The EA adjudged this an “undesirable trading situation” under its legislation, meriting a multimillion-dollar fine.

It was also a climate crime, given the spillage caused several thousand extra tonnes of carbon emissions because more generation was needed from gas.

It’s a complex industry, and further regulation, either of price or ownership structure, will be difficult to design. Some analysts believe an enforced break-up of “gentailers” such as Genesis and Meridian would improve competition. The Government is considering this, but other experts say reform needs to go further, with regulation to recognise the imperative of affordable energy.

A secure national grid is too important to be left to industry players.

It’s not often academics cite Britain’s Margaret Thatcher as an exemplar of protecting the poor, but Victoria University’s Geoff Bertram, an expert on industry regulation, has pointed out that even the flinty queen of 1980s deregulation put a cap on the margin power companies could charge relative to inflation. The United States has similar restrictions, which constrain how the companies are permitted to value their assets. Lack of such curbs here has resulted in what Bertram terms “a massive expropriation of wealth” from the public to the power sector, unjustified by productivity or true costs.

Further concerns relate to insufficient incentives or requirements for investment in new renewable generation. The International Energy Authority says it’s likely New Zealand has been underinvesting in new capacity for 20 years.

However, for a Government now in its fourth year to blame previous administrations is a bit rich – especially since the importation of emissions-spewing coal has ramped up markedly under Labour. Act suggests the Government itself could be retarding new renewables with its proposal for a bumper new pumped-hydro storage facility at Lake Onslow, the advent of which might make some new capacity redundant.

The likely wind-down of the Tiwai aluminium smelter is a further complication. It could free up 13% of the country’s generation, without the grid having the ability to distribute it to anyone much beyond Bluff.

It doesn’t help that anything the Government does to crimp the electricity sector will also crimp its own considerable annual dividends, and infuriate private shareholders. But a secure national grid is too important to be left in the lightly regulated control of industry players. The Government must shine an urgent spotlight on this critical issue. New Zealanders are tired of being left in the dark. l