Brownlee’s power reforms hurt national interest

Written By: - Date published: 9:00 am, July 22nd, 2010 - 23 comments
Categories: energy - Tags: , , ,

Is there any aspect of government policy that isn’t either attracting popular protest or damning criticism from the experts, or both? We’ve seen the last minute back down on mining after tens of thousands of Kiwis stood up, we’re seeing a growing tide of anger as Kiwis realise that all our work rights and wages are for the chop.. but one policy that has avoided public criticism on the level it is getting from the industry is Gerry Brownlee’s mad electricity reforms.

I’ve been talking with some industry insiders and this is what they’ve told me.

Meridian Energy has been forced to swap dams in the Waitaki river system in return for Genesis’s gas generators at Huntly. Having two operators running the hydro system on on river system is nuts. Genesis has the upriver dams, so it controls how much water Meridian’s dams will get. If it spills water from its dams, the water actually bypasses half of Meridian’s dams, meaning less electricity is generated from that water.

And it may well be in Genesis’s commercial interests to manage its dams water in a way that results in more spilling, screwing over Meridian, some times. If Genesis spills water that would otherwise have gone through Meridian’s dams, there may not be enough hydro power coming from Meridian’s dams to meet national demand. When that happens, the price of power goes up, meaning more profit for Genesis’s dams, and it’s Genesis’s coal plants that step in to fill the supply gap.

It’s insane enough that we have government bodies that are mandated to compete against each other and to maximise their own commerical interests without regard for the good of the country as a whole – it’s like letting your hands do whatever they want to do, not what is best for you. It’s even madder to put a knife in one of your hands and give it an incentive to stab the other.

The point of the electricity industry is to provide supply to match our electricity demand at low prices and, preferably, from renewable sources. Giving Genesis an incentive to waste hydro water to force up prices is irresponsible and stupid.

The solution, of course, is to do away with this nutty competition system altogether. Renationalise Contact and the lines companies. Form a single body tasked to provide the service as efficiently as possible, just like we have NZTA to provide State Highways and Kiwirail to provide the rail system. It doesn’t make sense to have artificially divided government bodies spending money on competing with each other in a market that is a natural monopoly, where true competition can never exist.

23 comments on “Brownlee’s power reforms hurt national interest ”

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  1. Bored 1
    22 July 2010 at 9:31 am

    The whole thing has been a joke since the Douglas deforms and his inheritors took the ridiculous market model to what was a well integrated system. Its about time Labour announced their policy on this which should be to bring it back into a regulated post SOE government department.

    • ghostwhowalksnz 1.1
      22 July 2010 at 12:34 pm

      Douglas era reforms made a single SOEs for generation ( Electricorp) and distribution ( Transpower) which made sense.
      It was Bolger and Max Bradford which created the ‘four generators’ from one AND spilt the local distribution/retailers into separate companies.
      Remember too its was the generator/retailer that Bolger sold off ( Contact) who turned around and sold the gas turbines from inside the building at Stratford, which were at a location that would have reduced peak power prices. This was because the central NI is a capacity constraint and Stratford can send peak load power in either direction

    • Ryan 1.2
      22 July 2010 at 1:09 pm

      Awsome point. Some coherant policy publication is needed. In addition to the “power” surge,

      KIWIBANK
      KIWIRAIL
      KIWIOIL

      Brownlee doesn’t have the balls. Even if he can say coal is “sexy”.

    • burt 1.3
      22 July 2010 at 10:17 pm

      Don’t forget how when we had a surplus we celebrated their profitability. I would have thought leftist ideology would have used the other economic factors to lower state run utility prices ? Funny the opposition only noticed the robbery after not being in a position to spend it.

      Facts, figures and opinion here: DPF’s Kiwiblog : Power Company Dividends

      • Ari 1.3.1
        23 July 2010 at 12:55 pm

        I find it hilarious that you’re saying that power prices should be higher when high SOE prices for essential goods can be simplified down to taxes, and regulating SOE prices can be simplified down to a tax cut. 😛

        Normally I’m not a huge fan, but frankly, making power cheap is worth it.

      • burt 1.3.2
        23 July 2010 at 3:28 pm

        I’m not saying that at all. I’m saying it’s hilarious that supporters of big govt only care about power prices when in opposition. If the state wants to own all production then the state (irrespective of the colour of their logo) should face the music about the end consumer price.

        Taxes are what the govt take to provide essential revenue. An SOE’s requirememnts to return a profit rather than operate with zero profit is govt policy. You are the one who seems to be equating SOE profits as part of general taxation – something that a leftist ideology should find repugnant.

        • felix 1.3.2.1
          23 July 2010 at 3:33 pm

          Eh? Who are these people you’re tilting against, burt – the ones who wanted high power prices before but now don’t?

          I’ve never met one.

  2. Craig Glen Eden 2
    22 July 2010 at 9:45 am

    The cost of power has to come down I believe and the current set up has not delivered for Kiwis. Just like with our phone lines and the break up of old phone service competition hasn’t worked.

    • Carol 2.1
      22 July 2010 at 9:52 am

      It does seem to me that the profiteers from our electricity services are way bigger parasites/bludgers than any of the small minority rorting our benefit system.

      Some people on pensions struggle in winter to keep their homes warm in winter because of the high prices of electricity. How do the electricity profiteers sleep at night, when their wealthy lifestyles in such hardship for some people?

      • Ryan 2.1.1
        22 July 2010 at 1:29 pm

        The Nats have got an injection for that. It creates an illusion of helping the economy, increasing the GDP and reducing debt. Paula Bennetts on double dose, is’nt she doing well?

  3. wyndham 3
    22 July 2010 at 10:17 am

    Pretty well everything that Brownlee has touched so far has been a disaster. He appears to be one of the least able of the National front bench line-up. Even his ‘control’ of the house has proved to be less that competent and it must surely be time for a reappraisal of his continued tenure of some important ministerial portfolios.

  4. MikeG 4
    22 July 2010 at 10:23 am

    Another good post Marty.

    What is even more bizarre is that the gas generators that Genesis have to give to Meridan are on the same site as the older coal/gas units. My understanding is that they share a lot of the same facilities on that site. It will be like trying to divide up assets in a messy divorce, but then to keep living in the same house.

    It’s definitely time for Brownlee to be rejuvenated. Perhaps he could be melted down for some bio-fuel.

    • Bored 4.1
      22 July 2010 at 10:26 am

      He does seem tinder dry.

    • Lanthanide 4.2
      22 July 2010 at 11:53 am

      “Perhaps he could be melted down for some bio-fuel.”

      Bio-fool perhaps. Could also make a joke about whale blubber being supplanted by kerosene for lamps.

  5. tc 5
    22 July 2010 at 11:17 am

    GB: hey John, I’ve seen an area that’s not broken and I’ve some really bizzare ideas I’d like to implement.
    JK: It’s not a cycleway is it?
    GB: nah but it’ll get some SOE’s hurting each other and NZ in the process
    JK: it’s not about kiwibank is it?
    GB: nah it’s about energy…remember you gave me that folder.
    JK: Did I? Whatever ! geez this new blackberry game’s awesum
    GB: so is that a yes or no ?
    JK: shit I dunno, go see Blinglish he’s got our backers tasklist.
    GB: He’s too busy cleaning up after Basher/Crusher and Trolley.
    JK: You still here fatboy !

    • Bored 5.1
      22 July 2010 at 11:57 am

      Beautiful, the backers task list is spot on…..so very obvious in everything they do.

  6. mickysavage 6
    22 July 2010 at 11:50 am

    There were another couple of aspects of the reforms which are, there is no other word for it, weird.

    Meridian used to be ranked by the Clean Energy Guide as the best performing New Zealand power company in terms of sustainability.

    But Brownlee’s reforms lumped Meridian with Huntly’s gas powered stations.

    The Clean Energy Guide now states that “Due to recent changes in the electricity market the Clean Energy Guide requires updating’.

    The justification behind the change is to “reduce geographical concentration’. Meridian was focussed on the South Island and Genesis and Mighty River were focussed on the North Island. Meridian’s North Island power sources are now increased. This is not necessarily a bad thing but I do not understand why a Waikato power station or a Geothermal station could not have been provided instead of the Hawkes Bay diesel station.

    Meridian’s management were upset by the changes. According to the Press

    A Government review of the electricity sector is jeopardising the green reputation of one of its biggest money-spinners. Giant state-owned South Island generator and retailer Meridian Energy’s multimillion-dollar carbon-neutral generating status will be threatened if the recommendations of a review requested by Energy and Resources Minister Gerry Brownlee are adopted.

    Brownlee appears indifferent to the impact Whirinaki could have on Meridian’s reputation. “It has been overstated,” he told The Press.

    Meridian has written about the review to its shareholding ministers, Finance Minister Bill English and State-owned Enterprises Minister Simon Power, and to Associate Infrastructure Minister Steven Joyce. However, its letter has not been addressed to Brownlee.

    Meridian chief executive Tim Lusk had said it would not consider building gas-fired power stations. “Our mission statement is to be a global reference company in renewable energy. It is pretty hard to see how we would move into gas, because it would not do a lot for our brand.”

    Can anyone come up with a rational explanation for the change apart from the desire of Brownlee to stuff up Meridian’s green credentials?

    • dave brown 6.1
      22 July 2010 at 12:31 pm

      Yeah the NACTs want to prove that SOEs are inefficient because they jack up the price and that they need to be privatised. Its called ‘market rationality’.

  7. Margaret 7
    22 July 2010 at 2:33 pm

    Lots os spills from the river can mean water to divet away somewhere else, water they can sell.

    Or maybe they are already diverting water for mining.

    that would be smart National thinking.

  8. tsmithfield 8
    22 July 2010 at 4:54 pm

    I guess theres a first for everything. I agree with you Marty. A competitive model for electricity is not appropriate for NZ so far as generation isn’t concerned; we simply aren’t big enough, and the payoff is quick enough to encourage commercial operators to invest in future capacity.

    Therefore, this is one of the few instances where it is better for the state to run a state-owned monopoly.

    Competition should only be at the retail level, not the generation level.

  9. Irascible 9
    22 July 2010 at 5:02 pm

    The Bradford electricity competitive model that also destroyed the local authority power companies has been an ideological and economic disaster from the beginning. Brownlee’s scheme only compounds the errors. Watch out for increased prices, greater thrust for privatisation and then a collapse of the reticulation / generation structures.

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