Productivity in the electricity lines sector
One of the biggest challenges the New Zealand economy faces is how to boost its productivity. By increasing the output that is produced with a given amount of resources, increased productivity means we can all be better off. We were surprised, therefore, to see the Commerce Commission proposing a target of 0% productivity growth for the electricity distribution businesses (EDBs) in its draft regulatory settings for the coming five years. This target follows on the Commission’s finding that productivity in the EDBs has been falling by 1.1% on average each year in the ten years to 2014. More recent data suggest the trend of declining productivity amongst the EDBs has been continuing.
This trend is of significant concern as declining productivity means higher costs and higher prices for electricity over time. Zero or negative productivity growth for the regulated businesses also suggests the regulatory system is not working well to promote the long-term benefits of consumers. TDB recently assisted the Electricity Retailers Association of New Zealand (ERANZ) with a submission to the Commerce Commission on the matter. We argued the Commission needs to provide greater incentives for the EDBs to boost their productivity. Find out the details in our submission.