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Special pleading from the Electricity Authority

Written By: - Date published: 10:17 pm, June 6th, 2013 - 35 comments
Categories: cost of living, david parker - Tags:

Dr Brent Layton of the Electricity Authority has produced a 28-page paper to refute the claims of Molly Melhuish, Dr Geoff Bertram and Bryan Leyland that “the Authority’s approach is a light-touch approach to regulating the electricity markets.”

He says Geoff Bertram’s  chart, showing that other countries’ residential prices have stayed steady or fallen while New Zealand’s have doubled, is “misleading”.  Then he produces his own chart, which shows that other countries’ residential prices have stayed steady or fallen, while New Zealand’s have doubled. Both rate of increase and size of increase are higher in New Zealand than anywhere else.

He claims that to claw back the excess-profit-based revaluations of the past decade would “breach the regulatory compact” established when ECNZ was broken up.  But he has no record to show what that regulatory compact was.  If you go back you’ll find that (a) Max Bradford expected prices to fall following his reforms; and (b) Labour’s Energy Policy 2000 explicitly targeted supply of electricity “at least possible cost”.  The regulatory compact has been breached by the gentailers – all Labour proposes to do is roll back that breach. David Parker has this comment:

Dr Layton crafts arguments about some implicit but undefined regulatory bargain when ECNZ was split up. This is grasping at straws. You would think what is proposed (by Labour) will not pay production costs plus a fair return on capital, when it actually does. You would think new generation choices were being regulated rather than efficiently exposed by competitive tender. You would think that retail competition is being curtailed, when it is being encouraged.

Layton says that forcing prices and asset values down will have a “chilling” effect on weak, fearful investors.  He neglects to take account of the chilling effect for a Porirua family of having their power disconnected in the middle of winter because they can’t pay the bill.  The ‘”chilling” metaphor is particularly inapt when used to defend wealth transfers from the poor to the rich.

35 comments on “Special pleading from the Electricity Authority”

  1. Brent Layton is yet another conflicted commentator who supports the status quo like his job depends on it, because his job does depend on it. As it stands, and apart from the obvious self-interest, his commentary breaches the bounds of credibility with its complete reliance on theoretical arguments, unproven assertions and contradictory statements. It’s a complete joke, and only National’s cheerleaders refuse to see it.

  2. Grumpy 2

    Molly Melhuish was an energy lobbyist used by the pro-Bradford forces to push through the Bradford reforms. She was a frequent guest in the hallowed halls of major players such as Southpower with prime movers such as Laurie, Hodge and darling of the Greens, Roger Sutton.
    It appears she has now changed her mind but her credibility is not in the same league as Leyton.

    • ghostwhowalksnz 2.1

      Max Bradford is still alive and working in Wellington as a lobbyist.

      I think hes behind a lot of the misinformation , both about his so called reforms and the current NZ Power.

      I see his hand in musings f rom Farragoblog about what a wonderful success his now discredited split up of the sector was

    • lprent 2.2

      So what. Don’t you learn from experience. I do when I see the difference between the theoretical vs the practice.

      Evidently Langton is so dependent on his job that it is affecting his ability to do that. He wrote a paper that starts with the theoretical economic model that we were sold and then proceeds to spend the rest of his paper making excuses about why it did not.

      Back when Max Bradford was mooting these reforms, I was uncertain about the effects downstream myself. What was used to push for the reforms was that the precept that privatising parts of the sector would make it more efficient for residential and industrial consumers. It has done the opposite.

      1. Would cause the capital investment to be made to prevent the shortage/glut problem of the previous decades.
      It did not. What we got was smaller capital investments into less capital intensive plants with higher operational costs. We also got steadily closer to the production limits of peak power usage. This is because there hasn’t been a major base load investment since the 80s. The effect is that the system is now configured towards delivery of cheaper base load to industrial, especially heavy industrial consumers while ensuring the residential users get gouged by more expensive peak power from high cost plant.

      2. The productivity of delivery from the private sector would be better than the state system.
      That turns out not to be the case. The electricity sector is now far more bloated with people than it ever was – most of the increase is from sales people. Most of these people are concentrated in the residential market and have to be paid for with higher prices. They certainly don’t add anything to the productivity of the sector except for drawing wages.

      3. That prices would fall from privatising the sector.
      They have not. Prices in all sectors have either remained static or risen. When you look at Layton’s figure 11 where he hides the rise in a interestingly selective graph you see that inflation adjusted power prices have been steadily rising in NZ because of points 1 & 2 and the skimming from the sector from dividends and managerial wages. Meanwhile if you did the same graph showing trend lines from start to finish, you’ll find that pretty much every other country has either static or diminishing power prices. Exactly as was displayed in the indexed prices graph he was criticising.

      We have now had about 15 years of steady prices rises in real terms and virtually no new baseload capacity. I’d call that a failure in terms of what was promised when the sector was partially privatised.

      If you don’t think so, then rather than trying to shoot the messanger for what she was doing 15 years ago, then why don’t you explain how it does fulfill the bullshit that the electorate was sold on? While I’m waiting I’ll go and support for regulating the sector to induce the required types of capital investment.

      • Grumpy 2.2.1

        I agree that the current electricty market is an artificial one, one that pricing is based on an arbitrary return on assets.
        It is high overhead, duplicated rubbish. molly’s position may well be correct and is close to my own but to laud her as some kind of expert is wrong. Either she was wrong then or she is wrong now, either way she is wrong.

        • Draco T Bastard 2.2.1.1

          Either she was wrong then or she is wrong now, either way she is wrong.

          Warning, logic fail detected.

        • lprent 2.2.1.2

          Haven’t read her stuff from the 90’s. Only started reading it some time after 2007. Was looking at the logic rather than the person.

          So what you are saying is that she has long experience with the electricity market? :twisted:

          Personally I have come to the conclusion that the natural monopolies inherent in the electricity market would make the “natural market” either a monopoly or a cozy duopoly. The competition we have in our system is what is artificial. You only have to look at the degree of implicit collusion that is naturally occurring amongst “competing” firms in almost every area to realise how strong the monopolizing principle is.

  3. Ad 3

    Here’s a quandary from the left: on the one hand, a philosophy of resource austerity from the Greens that tells us we should use a minimum of the world’s resources (particularly water), because it is the right thing to do.

    And on the other hand from the right, a philosophy of austerity that tells us we should use only the world’s resources (particularly water) we can afford.

    There hasn’t been a whole lot of dialogue between the two in this country. The Labour-Green energy policy to me (although I hated its timing) is at least an attempt to be both nationally coherent and price-competitive. It’s at least an invitation to start reconciling two different kinds of permanent austerity together.

    Dr Layton should lift his dialogue to that level.

    • Tom Gould 3.1

      The right say that no-one owns water, whereas the left say that everyone owns water. So the right say it’s free and the left say it’s not. A free resource is pretty attractive to a corporate in the water business – hydro generation or irrigation for example. Could this be crony capitalism?

  4. jps 4

    Good response from Parker. BTW, its Bryan Leyland – Geoff is the Waikato academic.

  5. ghostwhowalksnz 5

    What surprises me is this convoluted reasoning from Layton

    “But it is easy to see that if the Code was changed in this way generators would
    quickly adjust the way they set their offers. In order to maximise their returns
    they would estimate the highest price needed to fully satisfy demand and, if
    they are happy to be dispatched at that price because it is above their actual
    marginal cost, they would pitch their offer at just below that price. ”

    So he says they will game the system to extract highrer prices !

    And yet the current system allows that as well, but he doesnt see that

    • ghostrider888 5.1

      invested interests

    • burt 5.2

      I think he sees that very clearly – but unlike some he seems to also see that this Muldoon era proposal won’t stop what is already happening.

      Guess he’s not singing from the party song sheet pretending that some half baked failed model from yesteryear will work.

      • One Anonymous Knucklehead 5.2.1

        “Failed”? Yesteryear”?

        Neither of these apply to NZPower. Is there some vague remote chance that you might try a reality based argument for once?

        We need better wingnuts.

    • tracey 5.3

      Isn’t it good that he has pointe dit out so the new law can be drafted accordingly

      ““breach the regulatory compact” established when ECNZ was broken up.”

      It won’t breach anything if it is a legislative change. That’s like saying we can’t change any law because it will breach the implicit certainty of having the last law.

  6. geoff 6

    I do wonder if at least some of the rightwing parasites have acknowledged amongst themselves that they’ve sucked too much blood from the punters in punterland.
    The country is increasingly resembling a cadaver and it must have crossed the minds of a few wealthy/powerfuls that it’s probably not in their own interests to actually kill the shackled victim.

    • Tim 6.1

      +1
      (I figure a +1 is OK as I serve out my self-imposed ban from commenting – which I think expires Monday)

      • Tim 6.1.1

        Oh…. and in sympathy for Morrissey … “over on Open Mike” (as the uber-connected would say),
        NZ’s greatest friend to ‘the diversity of mankind’ and the Universe (Jum Mora, and every man’s best friend), seems to be taking a break this Friday, in favour of the ‘Plagiarist-in Chief”. We’ll no doubt see the rediffusion of Oirush ‘pearls of wisdom’ as She (the femme version of the Devil) pumps up her MSM presence.

        (Jum – do the decent thing and follow that other wudda/cudda/shudda been ‘nicest man on the planet’ – (ex RNZ) to the land of the commercial, and the right wing apologencia.)

  7. burt 7

    The ‘”chilling” metaphor is particularly inapt when used to defend wealth transfers from the poor to the rich.

    Yep, when Labour were last in power defending billions in generation profits by saying it was OK because it was generating state revenue rather than private profit – The poor who were unable to pay their power bill must have been very happy that they were forced to turn their heaters off and not pay tax rather than turn their heaters off and not pay CEO’s… How warm they must have been inside knowing that….

    • One Anonymous Knucklehead 7.1

      …and how good is it that they finally got around to doing something about it.

      • burt 7.1.1

        Yeah, cause the same political party that justified forcing old people to shiver by telling them it was for a good cause (state revenue) will suddenly realise they have an election to win and promise that they now care… Must be nice to suddenly not need the revenue they once needed – where is it coming from now ??? A printing press perhaps ?

        • One Anonymous Knucklehead 7.1.1.1

          The economy always does better under Labour led governments (yes, it does), that increases the tax take. I expect the top tax rate to go up too, and of course there’s the CGT.

          Your bitterness is showing; do you have the “time for a change” blues? :D

          • ghostrider888 7.1.1.1.1

            or Amnesiac Sneaky Feelings :-D

          • burt 7.1.1.1.2

            Right… So the last two Labour governments leaving the economy in recession is a little point that has slipped past you. Guess it’s easy to forget the facts when chanting “Labour good – National bad” like a brainless partisan Knucklehead.

            • McFlock 7.1.1.1.2.1

              8 years of growth followed by the GFC is what you judge Labour on vs National vs Labour.

              I agree that the first ACT government was a fuckup economically (not to mention socially, culturally, ethically, philosophically or practically), though.

        • tracey 7.1.1.2

          As opposed to under the current regime we get increasing power costs and reduced dividends tot he state. I can see how you think that might be a better option burt.

        • tracey 7.1.1.3

          Like the Americans?

    • George D 7.2

      Yeah, Cullen was a evil bastard quite often, prioritising revenues over the good of the country. It’s the same reason TVNZ was allowed to continue its dollar-chasing decline, at the expense of an intelligent and informed public.

      The right of the Labour Party were not sufficiently beaten down to see a return to a fair NZ. 30 years after the start of the Roger Douglas experiment, I think we’re finally beginning to see policies from Labour which reject it completely.

      • tracey 7.2.1

        He caused the Nats much angst because they actually agreed with so much of what he did. maybe that’s why they knighted him ;)

      • Colonial Viper 7.2.2

        30 years after the start of the Roger Douglas experiment, I think we’re finally beginning to see policies from Labour which reject it completely.

        Shit I missed that. Where was the Labour press release on
        – Return to compulsory unionisation
        – Policies of full employment
        – Return of a government Rural Bank and State Insurance
        – Massive government incentives for added value exporters.
        – An unemployment benefit above the poverty line
        – The return of SOEs to non profit public entities
        – True free to air non commercial public broadcasting
        – Free tertiary education
        – etc

    • woodpecker 7.3

      Sooooo. The moneys better off in the pockets of the CEO’s. Good old trickle down eh Burt.

  8. Shaz 8

    Well Fisked Mike – Smithed perhaps!

    The paper reminds me of what my Dad used to say about spurious arguments. “It all makes good sense but only if you start from the premise that the moon is made of green cheese”. The basic fact is the electricity supply regime in NZ is broken in more ways that can be counted on a set of human digits. First of all if the MOM advocates have their way then energy pricing has a chilling effect on investors who want to invest in things other than electricity. The spot pricing for wholesalers buyers is a nonsense, pricing that ignores the cost of production is counter to common sense, pricing that takes no account of carbon intensity and pricing policies that discourage managed use is near criminal. Policies that discourage production at the margins and discourage new startups by small operators are costing NZ dear in jobs, energy security and innovation. How do I loathe thee – let me count the ways :-( .

    Finally I’ve heard Geoff Bertram talk on this issue of power pricing several times and the points made by Mr Leyland are simply not the points he makes.

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