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Power profits and the consumer

Written By: - Date published: 7:30 pm, April 22nd, 2013 - 15 comments
Categories: cost of living, david shearer, energy, equality, greens, labour, russel norman, treasury - Tags:

New Zealand’s energy pricing over the last twenty years was thoroughly canvassed by Dr Geoff Bertram last year in a paper presented to the Fabian Society as part of its “Light-handed Regulation” series.  The paper can be found here, and in the light of the Labour/Greens’ announcement last week about NZ Power is well worth a read.

Geoff’s summary statement is:

the unifying theme of energy sector policy since 1986 has been to facilitate the gouging of wealth, from the poor and the powerless, for the benefit of the rich, the strong, and the Treasury. The wealth transfers in energy, taken on their own, account for only a part of the enormous growth of income and wealth inequality across the New Zealand economy over the past two decades – only a few percentage points of GDP, a few billion dollars here and a few billion dollars there, have been shifted from poor to rich via electricity and gas pricing.

real-electricity-price

The paper is extensively referenced with plenty of graphs. This one is particularly relevant.

Geoff is a fiercely independent analyst and in his view all governing parties as well as state agencies bear some responsibility for the fact that consumers have been unfairly treated through the period to date.

 

At the time of writing, he saw no evidence of any will to regulate:

In New Zealand the policy landscape in relation to electricity generation and retailing remains virtually unchanged – apart from the rush by Treasury to raise several billion dollars in cash by unloading three bloated electricity SOEs onto private investors.

It is noteworthy that the political will to regulate showed up for the natural monopoly – gas pipelines and electricity networks – only after they had locked-in their wealth transfers from a shift to monopolistic limit pricing. The political will to regulate generation and retail today would put immediately at risk several billion dollars of so-called fair value” in the SOE books, which Treasury is seeking to convert to cash revenue via share floats.
These wealth transfers are not yet locked in and are subject to genuine regulatory risk – which surely provides a clue as to why there is no regulation on the horizon. Reluctantly closing the stable door after the horse has bolted – after the big wealth transfers from consumers in those sectors had been banked and locked in via balance-sheet revaluations and ownership transfers in gas and electricity networks – is much easier than tackling sectors where predation is ongoing and in mid-flight – airports and electricity gentailing being leading examples.

But at least now with NZPower there are parties with the political will to regulate monopoly price-setting.  David Shearer Labour and Russel Norman for the Greens have signalled that they will restore some balance so household and family consumers get a long-overdue fair go.

 

15 comments on “Power profits and the consumer”

  1. Thanks Mike. Good post.

    Please note wingnuts. This is the announcement of policy based on long term analysis and not short term PR exposure.

    For too long the poor and middle class have been ripped off so that the rich can become even wealthier. Time for a change.

  2. Peter 2

    Green/Labour might just be on a roll!

  3. geoff 3

    Great post Mike. How do you get Geoff Bertram’s message in the mainstream?

    • Mike Smith 3.1

      He’s pretty well used – see here http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10863083. Also Anthony Hubbard’s article in Saturday’s DomPost – couldn’t find it on line – had extensive quotes. He certainly has the information and in my view the best understanding of the way energy prices are actually set.

      • geoff 3.1.1

        He needs to be on the tele. And he needs to be helping Labour/Greens with the detail of their policies. Have you heard this?

        Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

  4. Ben 4

    I wonder if Russel Norman could use that graphic in the House to force Simon Bridges to honestly answer some questions.

    (Answer: Probably not – he’d simply say “I agree with the sections between…”)

    • Draco T Bastard 5.1

      And Campbell nails it at the end:

      One should also note that the asset sales programme is, at this point, a total shambles. Long ago, the government lost the argument for this selldown, on any grounds of economic efficiency. At the outset, it was always going to be a marginal matter whether it would be cheaper to borrow the money rather than sell the assets – but now, the government doesn’t even try to make a case based on the actual and opportunity costs involved in such a comparison. We’re talking about losing hundreds of millions in this ideological exercise.

      The share prices have dropped, there’s no way that National are going to get a good price and they said they would only sell if they would and they’re still selling. It’s pure ideology that National are running on and it only ever benefits the rich.

  5. Huginn 6

    Thanks, Mike.

    I’ve been surprised by the lack of substance in the criticism to this proposal. Apart from the silly Chicken Licken red-peril stuff, it seems to come down to:
    -The distortion of price signals will lead to under-investment in generation in the future, and
    -This is bad for the capital markets.

    Neither of these arguments are very convincing. Price signals get distorted in imperfect markets, and that’s a justification for government intervention. And in any case, price signals aren’t the only information streams available to decision makers.

    I haven’t seen anything like a serious attempt from the current government to challenge the model, to propose an alternative model or even to cost out the alternative strategies.

    It’s weird and creepy – and disappointing because this is too important to work itself out in an intellectual vacuum.

    • Draco T Bastard 6.1

      I haven’t seen anything like a serious attempt from the current government to challenge the model, to propose an alternative model or even to cost out the alternative strategies.

      That’s because they’re happy with the current model which enriches the rich at the expense of the many.

  6. Listen, the price signal is coming from the people huddled together in their lounges with their heat pumps switched off singing to market to market to buy a fat lie, home again home again in time to die.
    And then there is the vote signal coming next year when the NACTs and their cronies join the international 1%ers using NZ as a tax holiday stopover to visit their blind trustees.

  7. ianmac 8

    “only after they had locked-in their wealth transfers from a shift to monopolistic limit pricing.
    That point was raised this morning in the excellent Nine to Noon discussion from two experts with opposing views. Allow billions of dollars to accumulate from taxpayers dollars then sell, sell, sell.

  8. prism 9

    Green Party Energy Spokesman Gareth Hughes was good on Morning Report Radionz. Good explanation straight to the listeners, clear and mentions they have been working. Nice sound. Sounded cool and lucid and believable. Good. While listening to it, my computer has a break in the flow, so if that happens to you hang on and the rest will come forth.
    8:16 Greens say energy policy announcement timing not deliberate
    Download: Ogg Vorbis MP3 | Embed
    The Green Party says its policy to create a single purchaser of electricity was not driven by asset sales. (3′19″)

    On 9 to Noon with Kathryn Ryan this morning Geoff Bertram was a good speaker on the power proposals. Also speaking was competition-coach Carl Hansen who has the skill of talking without pause for breath and being able to marshall his words so that they fill up all the available space and maintain his verbal flow despite the effort of the interviewer to interrupt from time to time and ask a question or pose a scenario.

    wikipedia
    Carl Hansen has been the Electricity Authority’s Chief Executive since its inception in November 2010.
    and
    Geoff Bertram was until June 2009 a Senior Lecturer in Economics at Victoria. His research interests include regulation of public utility industries such as electricity, gas and telecommunications; economic and political development of small island societies with a particular focus on the Pacific; the design of policies to address climate change; and the long-run evolution of the New Zealand economy.

    • Morrissey 9.1

      Hansen was reduced to incoherent babbling. Why the hell is Bertram not on the media more often?

  9. Saccharomyces 10

    Looks to me like the biggest price rises were between 2000 and 2007…. who was in government then and what did they do about it?

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