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Dumb meters to be steamrolled out

Decision based on flawed cost benefit analysis

Minister Gerry Brownlee has just announced he will not regulate the roll-out of new meters to ensure consumers, as well as retailers, receive benefits. He said "the benefits would not outweigh the costs."

Surprise, surprise. His cost benefit analysis ignores the benefit to consumers of lower power bills, because this is completely offset by the loss of profits to retailers. And it's the retailers who are the decision-makers in this matter.

The first pages of the analysis do say the new meters offer "the potential for competitive advantage (to retailers) through offering new products and services to consumers." But the rest of the report assumes the retailers will not compete – all will offer the same functionality.

This is getting very close to acknowledging, even condoning, collusion. It seems that what consumers will get is what ‘the industry’, collectively, wants to provide. Where's the innovation, the benefit to consumers of smart, entrepreneurial retailers?

For consumers to get benefit, three things are needed - smart meters, smart tariffs, and smart (informed) consumers. If the electricity market is to function efficiently, the third is the most important of all.

The report mentions smart tariffs once, but does not use the idea in its ‘calculations’. It never mentions informed consumers.

The report assumes only 1% of domestic load will be shifted from high-cost to low-cost times of day. In contrast, the report by Concept Consulting to the Parliamentary Commissioner for the Environment (PCE), supporting the original Smart Meter report, expected 2.5% to 10% of load would be shifted to low-cost times. Why the difference?

There's little point in labouring over the report's many other weird assumptions – except perhaps to mention that it counts the cost of smart chips ($71 to install plus $26 per year licensing and back office support) from 2010, yet assumes that smart appliances are unavailable until 2015. These years of costs with no benefits are the main reason the calculated costs outweigh the benefits.

In fact EECA will require heat pumps to have smart thermostats by 2011, which makes the assumption even more unreasonable.

Oh, yes, perhaps we must mention that the report evaluates the project from a national interest viewpoint, but uses a discount rate of 10%.

Treasury used to evaluate infrastructure investment at 6%, but has apparently revised this to 8%, however 10% is simply incorrect for a national benefit analysis of infrastructure.

By not regulating, the Minister leaves retailers in complete control of what consumers will be offered. Consumers have every right to reject this decision, and demand that Minister regulate to require retailers to give consumers the opportunity to understand and control their electricity consumption.

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