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The Electricity Industry Bill - A Triumph of Pragmatism over Analysis


The Electricity Industry Bill -
A Triumph of Pragmatism over Analysis

The Electricity Industry Bill, introduced last night, is a triumph of pragmatism over analysis. In my opinion, the arguments were empty of facts:

• Compensation for shortages would supposedly be great for consumers. In fact, windfall profits from shortages would be ten times greater than the compensation paid out.

• Consumers should supposedly be happy that emissions pricing will increase the household power bill by only 5%, not 10%. This is a side issue, and temporary anyway as it is likely to be changed in future.

• The big issue is the growing gap between prices for domestic and industrial/commercial consumers, and this is not addressed in the Bill. The Regulatory Impact Analysis should have looked at this gap, and analyse the reasons for it. But… it didn’t.

Industrial consumers are happy with Ramsey pricing, which exploits captive consumers to the limit (note that you will not find the term in the Bill, but the idea remains). Industrial consumers are inside the “tent” – the Electricity Authority that makes the rules – and they like Ramsey pricing as it benefits them.

Domestic consumers are excluded from the Electricity Authority. The Electricity Industry Bill allows the Authority to override any pricing rules that are kinder or more rational than the Ramsey Pricing rule, so why would we be likely to see any changes in prices?

Domestic power prices are high today because the windfall profits are a benefit to central government. This Electricity Industry Bill does not change the pricing system that creates windfall profits.

Furthermore, the Bill gives the Minister the sole power to decide what’s fair. If he cannot support his pricing preferences with analysis, then we may as well go with our gut feeling – no more power price rises to domestic consumers!

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