Wednesday, December 9, 2009

If Brownlee's electricity reforms deliver any net public benefits it will be good luck not good management!

Nothing can be more damning of the Cabinet's 'actions in the public interest' than the Adequacy Statement in the Regulatory Impact Statement on the Ministerial Review of the Electricity Market. This statement, made on Page 2 of the Regulatory Impact Statement and presented to Cabinet, is repeated here in full.


The Regulatory Impact Analysis Team has reviewed this Regulatory Impact Statement and considers it partially adequate, with the following qualifications:

  • The RIS should have included a more comprehensive discussion of the risks associated with proposed options.
  • The RIS should provide a better idea of the magnitude of costs and benefits of the options discussed in comparison to the problem they are trying to address.
  • The RIS should have better reflected the range of views received during consultation.
  • There should be a discussion of whether or not the options proposed have been tried overseas and, if so, what their impact was.

The Ministry of Economic Development notes that many of the policies that are proposed in this Regulatory Impact Statement are intended for subsequent implementation by the Electricity Market Authority. It will be the responsibility of that agency to undertake an adequate assessment of the risks and costs and benefits of these proposals in due course."

This response from MED might seem reasonable if the proposed EMA is allowed to consider not implementing any of the proposed recommendations. But this is not the case. The Cabinet action is to put in place legislation requiring the recommendations to be given effect to. This means that the EMA will have to put in place potentially poorly considered decisions on the basis that they can review the quality of the decisions; but do nothing about it except do what they are told. In other words bypass the Regulatory Impact Analysis Test completely.

I regard this as deeply immoral behaviour by the MED; and I can't see how this doesn't constitute a breach of their most fundamental statutory duty, which is to act in the public interest. But the real agency failure here is with Cabinet, and Brownlee in particular.

Cabinet have again bypassed New Zealand's already very poor and weak constitutional protections. In a technique perfected by Labour and learned very well by National they have:

  • Made political capital out of meaningless rhetoric in response to public concerns.
  • Tried to create legitimacy for their own preferences (while distancing themselves from the process and any negative publicity) by having an 'independent' review.
  • Set a review scope far too tight to achieve a meaningful outcome with a timeline so fast that nothing meaningful can be done anyway.
  • Appointed 'independent' consultant advisors sympathetic to their own philosophies; and who have linkages to the groups that are the squeakiest wheels.
  • Bypassed already weak consititutional protections by claiming that another group will work out whether this should be done although Cabinet has, for all pratical purposes, already made the decisions.
  • Are pretending to have a new independant body but are requiring them to put in place specific solutions rather than require them to achieve good public policy objectives (ie no independance).
  • And last, but by no means least important, ensure that their are no good public policy objectives, nor anything remotely measurable, less the Government can be held to account for its choices.

And to point out just how damning the RIS Adequacy Statement is lets looks at the shortcomings identified by the RIAT.

The MED hasn't:

  • "... better reflected the range of views received during consultation." The implication here is that the consultation was only given superficial consideration.
  • "... included a more comprehensive discussion of the risks associated with proposed options." Which suggests that Cabinet hasn't been fully appraised on what detrimental effects might occur; but they have still made a decision.
  • included "... a discussion of whether or not the options proposed have been tried overseas and, if so, what their impact was." This is more damning than it looks as this didn't require the Ministerial Inquiry to explain why they are making recommendations that continue to make New Zealand's market design unique in the world (for example, as far as I am aware, New Zealand is the only significant electricity market in the world that doesn't have at least the option of zonal prices for loads - but the MI summarily dismisses zonal prices based on nothing but idealogical dogma). This also means that they have been allowed to ignore the large volume of international (and local for that matter) literature on these very problems in favour of their own preferences.
  • provided "... a better idea of the magnitude of costs and benefits of the options discussed in comparison to the problem they are trying to address." There are two implications here. The first is relatively obvious. No meaningful cost-benefit analysis, hence the phrase in the title. If it works (whatever that means) it will be good luck. The second implication is more subtle but every bit as important. The reason that the MI is unable to do a cost-benefit against the problem that they are trying to solve is because they never properly worked out what the problems are. Instead they have generalised the problems, created unmeasurable aspirational goals, and used an extensive degree of correlation to imply causation.

This last point is very important. The consequence of the absence of a proper problem definition based on good public policy objectives is then there are no measurable objectives. It is easy to argue that the absence of any measurable objectives (or stated public policy) means that the politicians and public servants cannot be held accountable. In fact any debate on the success or otherwise of the Government's proposed legislation can only be compared to a theoretical (and substantially fictional) counterfactual (an assessment of what would have happened if their changes hadn't occurred).

The structure of the proposal looks suspicious to me as well (and possibly shows that National has learned a lot from Labour). The way that the legislation is proposed to be structured is that the industry must give effect to the Government's mandated solutions or else get regulated. Therefore, if there is still public concern over the electricity industry by the end of 2010 then the Government may be able to say "I warned you" and appear to come to the rescue. The cynic in me suggests that this will be well timed to try to avoid electricity being an election issue in 2011. A technique that Labour used in 2002.

In my view, however, the Cabinet has just set us on a path that may not mean unavoidable doom for the public good; but will certainly not mean unavoidable success. Let's hope we're lucky.