1493181545081 - Pattrick Smellie: Cards stacked against power price regime

Pattrick Smellie: Cards stacked against power price regime

OPINION: The way the Electricity Authority tells it, it first knew it had really big trouble with its transmission pricing methodology review back in February this year.

Tauranga-based Trustpower, which is challenging the electricity regulator’s whole basis for trying to change how the national grid is paid for, had requested details.

It wanted detailed worksheets from the cost-benefit analysis prepared for the authority by Australian consultancy Oakley Greenwood.

This analysis had been in circulation, and the subject of intense industry and political opposition, since May last year.

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Now, as TrustPower’s analysts poured over the worksheets, they discovered that instead of 20 worksheets, there were only 19.

The authority went looking for the missing twentieth page and was shocked to discover a range of computational errors.

It had already been uncovering issues with some of Oakley Greenwood’s calculations. Now they were uncovering more.

A question and answer session with industry participants found further deficiencies.

A disappointed, frustrated and no doubt embarrassed Electricity Authority board concluded there was nothing for it but to start again.

Oakley Greenwood is no slouch. Its website lists an impressive array of government agency clients in Australasia, Malaysia and the Middle East. Its private clients are among the largest in Australia.

Now it is being asked to pay back most of the $350,000 or so that the authority has spent on the faulty analysis, and has hinted it will go to court if necessary.

If the buckets of scorn being privately poured on the authority in electricity industry circles are any indication, the prospect of a breakdown between the regulator and its rejected consultant is a real possibility.

Imagine, for example, how Oakley Greenwood may feel about this blow to its standing if its work was so heavily influenced by the authority’s desire for a particular outcome that its ability to produce truly independent analysis was compromised

The sense among senior industry participants is that the authority ran a highly “directive” process with Oakley Greenwood.

Then there’s the political angle.

The new transmission pricing methodology (TPM) regime had become so delayed already that it was threatening to become an election issue.

Within recent weeks, the chief executive of Transpower, Alison Andrew, wrote to Energy Minister Judith Collins expressing concern that the proposals for a new TPM might be too complex to be implemented.

With no ability to directly intervene in the independent regulator’s deliberations, Collins used this slender point of leverage to write to the authority and express her concern about Transpower’s concerns.

Collins was already smarting over the TPM hospital pass, an issue of dire complexity but with easily understood outcomes.

Those outcomes are higher power prices in Auckland, Northland and a smattering of other areas, including the West Coast of the South Island.

As political gifts to Northland MP and NZ First party leader Winston Peters go, this was a doozy.

Indeed, Peters has already claimed victory on behalf of consumers with this week’s climbdown on the Oakley Greenwood report.

Likewise,the Auckland-based Employers and Manufacturers Federation must now feel emboldened that its blunderbuss lobbying tactics of yesteryear still represent a winning formula.

For the Electricity Authority to withdraw the Oakley Greenwood report at the eleventh hour, and kick final decisions beyond the September election, looks as if it’s bowed to political pressure.

Whether that’s true or not doesn’t matter.

The “optics” for the authority are terrible and invite an inevitable question: when will it conclude that its well-intentioned but flawed efforts to make transmission pricing fairer be abandoned as a failed experiment?

– BusinessDesk