Electrical storm

Written By: - Date published: 2:27 pm, August 13th, 2009 - 40 comments
Categories: economy, privatisation - Tags:

Breaking up the old Electricity Corporation into a bunch of artificially competing companies has been a 15-year failure. They’ve poured heaps of money into competing with each other (despite mostly being owned by the same people, us), they’ve under invested, and prices have gone up fast.
What’s National’s solution to this failed National experiment (which Labour didn’t have the guts to fix)? Break them up some more. Try to create more artificial competition.
It ain’t gonna work. We’re a small country, power plants and lines are big pieces of investment. It’s a natural monopoly; there’s never going to be genuine competition. Efficiencies of scale will be lost and all we’ll get are more expensive ad campaigns where companies (still mostly owned by us) compete to try to sell us the same electrons. All chasing a myth (for which the review offers no evidence) that more ‘competition’ will bring down prices. Of course, it’s also a stalking horse for privatisation – the review suggests selling Whirinaki.
The real solution is to abandon any attempt at making competition work in a sector that is clearly not suited to it. Bring all the companies and regulators back together as one. Plan the bloody thing properly rather than hoping the invisible hand will guide us. Set the organisation a set of simple goals – reliability, sustainability, affordability, and get on with it. Drop all the marketing crap and let the electricity sector do what it should be doing – generating and delivering electricity.

40 comments on “Electrical storm”

  1. Zaphod Beeblebrox 1

    Energy conservation measures (budget insulation measures were a good start) should be the mainstay of energy policies. More private ownership is not going to produce that.

  2. Chess Player 2

    I agree

  3. BLiP 3

    Classic National Inc:

    Hey, we have a problem because the competition in the electricity market is artificial – I know, lets make it more artificial!

  4. bobbity 4

    While the idea does have some merit I have some reservations

    1. The cost of buying back the assets now in Private ownership with the government books in tatters.

    2. The old power boards weren’t exactly shining beacons of efficiency.

  5. Maynard J 5

    National and Gerry’s turnaround on this has been as predictable as it has been amusing.

    For the last nine years we were on the verge of black outs day in and day out, and burning a million dollars of diesel a day for reserve generation.

    Now, the soluton is not new power generation and investment, but competition, which will somehow make everything ok.

    And yet when you read between the lines, it has nothing to do with competition, but the antithesis, collaboration!

    Yes that is right. To get up through dry years, Brownlee (and possibly the report) suggest that, for example, thermal generation should be stepped up over a longer period when hydro baseload capacity is forecast to diminish, instead of waiting for it to actually run low and then try to fill the gaps.

    If that approach is the future (and this is not a criticism of that approach in the slightest, in the short term) then what will competition do to assist, let alone keep prices down? They are talking about fixing the market for chirssakes.

    Giving Huntly E3P to Meridian will not magically make the companies collaborate and when they are required to act in a synergistic fashion the very idea of them competing is a fraud, and can never lead to lower prices, only poor supply.

  6. bill brown 6

    Here’s an idea:

    Set up a central controlling body to control the operation and funding of generation country wide. Give it the mandate to provide the distribution of this energy around the country.

    This body delivers energy at cost to the end points of its network. The cost will cover the maintenance and expansion of its network to enable it to continue provisioning energy during all foreseeable climate variations.

    At the end points of this body’s network set up a series of non-profit, community boards to distribute this energy to the users within their area of influence.

    These boards deliver energy at cost to energy users. The cost will cover the maintenance and expansion of the boards’ networks to enable them to continue provisioning energy during all foreseeable population and consumption variations.

    • BLiP 6.1

      Look, sorry, but that’s just far too sensible.

    • Armchair Critic 6.2

      Good idea, it could work well.
      The most recent move NACT have made along these lines goes a lot further and is closer to nationalisation.
      With the reorganisation of local government in Auckland the proposed legislation sets up a single monopoly utility that owns, operates, manages, renews and extends the water supply network from source to customer (and back again). No competing retailers, no split between creating the product, transmitting it and distributing it, nothing.
      The main difference between the two situations is that the one they are legislating to create, right now, will supply water, not electricity.
      Is it just me, or are NACT being inconsistent?

  7. bobbity 7

    “At the end points of this body’s network set up a series of non-profit, community boards to distribute this energy to the users within their area of influence.

    These boards deliver energy at cost to energy users. The cost will cover the maintenance and expansion of the boards’ networks to enable them to continue provisioning energy during all foreseeable population and consumption variations.”

    Nice in theory, however don’t expect it to decrease/stabilise costs to the end user – think rates – the city councils and community boards have been putting these up year on year and building their empires for as long as I can remember.

  8. Glad to see the national government looking to do what they can to make electricity cheaper, more power to them,

    • bill brown 8.1

      More of the same that made it more expensive in the first place.

      First sign of madness, doing the same thing over again and expecting a different result.

      Morons.

    • Armchair Critic 8.2

      Good on National for sitting the test, pity they got the answers wrong.

    • Draco T Bastard 8.3

      More competition will make it more expensive: More advertising, More bureaucracy and a decline in efficiencies of scale. Power, telecommunications, health, roads, and rail are all natural monopolies. Competition doen’t make them cheaper with, it makes them more expensive and less likely to provide what’s needed.

      20 years of failing to get all of these monopolies competitive should have proved that even to those on the political right. But, as per normal, they can’t see through their self-imposed blinders.

      • Swampy 8.3.1

        Power went up for years when the Electricity Corporation owned it. The government has done the same with the big generator SOEs which is nearly all of the assets still.

        But all of that nonsense above about how competition doesn’t work is a load of rubbish.

    • ghostwhowalks 8.4

      Cheaper power ,?? thats what Max Bradford said when he set up much of the current system in the previous National government.
      You cant buy power from China, you cant even be sure the power you buy from a generator came from their power stations.
      Lets end the pretense that there is competition over price and use a regulated monopoly or duopoly ( viz telecom/Vodafone)

    • Kevin Welsh 8.5

      Yeah! Good one Brett. Gerry’s the man. Woo hoo.

  9. factchecker 9

    the review suggests selling Whirinaki to one of the state-owned companies. hardly privatisation.

  10. vto 10

    The sooner the day arrives that every new house comes with its own power generation plant (wind, solar, composting, micro-nuclear) the better.

    Then we wont be beholden to either mankind’s extraordinary capacity for greed via the market, or mankind’s extraordinary capacity for incompetency via the government.

    Oh my giddy aunt what a day that would be for us masses …

    • bobbity 10.1

      Couldn’t do that, what would the fools fighting the right/left political debate have to moan about.

    • felix 10.2

      Too inefficient vto – needs a profit motive. That’s how you make things efficient, by taking profits out of them.

      Perhaps we could create a market by alternating houses – solar, wind, solar, wind – and everyone has to sell all their electricity to their neighbours at a profit.

      Then everyone would be super super rich as well from all the profits and we’d all be able to afford all the power we want!

      • Maynard J 10.2.1

        You would need some houses to have no power too – the market is not really happy if there is enough supply for everyone.

  11. Never mind we’ll get our financing from oversees. More money out of the country to shareholders an less for the Kiwi’s. Again.

    It’s just another forms of divide and conquer. LOL.

    Give it another couple of years and we’ll be tenants in our own country. Just like the US citizens in theirs.

  12. insider 12

    Hey let’s not let get facts get in the way of polemic and further politicisation of the system.

    Fact is the market is more reliable than it was as a single entity. Arguably investment is more efficient and generation was being built where it was needed not where it was convenient. Prices are not being used to subsidise different classes of customers. There was increasing moves to ensure generators wore the true costs of their generating decisions, like don’t expect Auckland customers to subsidise your building of a wind farm in Southland.

    Now we are reverting back to monopoly control with little oversight and the powerco managers getting greater control of the regulatory system. Do you think consumers are going to do well out of that?

  13. ghostwhowalks 13

    Heres a link to the document. They are asking for feedback

    http://www.med.govt.nz/templates/MultipageDocumentTOC____41697.aspx

  14. Rob A 14

    Agreed Zetitic. NZs economy isnt big enough for a US style free market, better to go back to a single power company run as a trust, it wouldn’t be driven by pure profit and any profits could be returned to the customers.

  15. Swampy 15

    The reason it doesn’t work is simple: the taxpayer still owns most of the generators.

    • BLiP 15.1

      Wrong. The reason it doesn’t work is that the government is trying to create an artificial market place when a government owned and operated monopoly would be the best thing for all New Zealanders.

  16. randal 16

    what I would like to know is where else in the world has a perfectly adequate electrical supply system been divied up like this so the ruling parties mates and cronies can start “collecting”?
    and why has no work been done to show what an abortion this edifice of the national party really is?

  17. ghostwhowalks 17

    I dont understand the table in the appendices comparing ‘costs ‘ of some hydro stations with a ‘price’ for power. Surely stations build 50 years ago have been paid off under a real world accounting system.
    And yes hydro stations were expensive to build, but cost nothing to run ( the water being free). In the context of the time the only other options were coal stations but required most of the machinery and steel to be imported ( a no no) while concrete and earth were local products, so that dams were seen as more beneficial to a economy that had to live within its means.
    Another historical detail that was lost is the Tongariro scheme was expensive for the power produced but the project diverted water flows around Taupo so that the Waikato flows were increased. The water could generate more money from the downstream stations. Thats the beauty of renewable sources like hydro is the resource can be used multiple times

  18. Nerdy 18

    I seem to be a bit slow off the mark regarding this string of comments – the last one was made 3 weeks ago… But, nevertheless, would like to comment on a few people’s comments.

    First of all, the components of the electricity market that involve competition are not natural monopolies, so competition will not increase prices due to this Draco T Bastard (so I would love you to post that proof that you had.. I have a feeling that you can’t see reality because of some self-imposed blinders). I love the logic deduced from many here that competition will lead to higher prices for consumers because of advertising costs. Competition increases a company’s incentives to reduce costs. This reduction in costs far offsets any additional costs for advertising etc. Bill Brown: a centrally regulated system is very inefficient and expensive. For a good example of this, consider the Soviet Union, which was a centrally run system that crumbled from the inside out as a result. If you can reduce the need for regulation, then that’s always the best way to go.

    There are, however, plenty of reasons why a purely competitive market will not produce a perfectly efficient price and supply of electricity. Electricity is an interesting market in the sense that the market works well except for about 1% of the time where the current supply doesn’t meet the demand. In NZ this basically occurs during dry periods. One of the problems is that investing in a power supply plant is really expensive, and if the purpose is only for it to run, on average, 1% of the year then it’s best to invest in a plant that costs the least to build, which happens to be a gas terminal. But gas terminals also happen to be the most expensive to run. Plus, this average of 1% a year is very inconsistent and unpredictable, which increases the risk of investment. Hence the function for Whirinaki – I’m not really sure who’d want to buy it.. So, given this supply issue, this creates a possibility for market power (which isn’t the same as monopoly power), allowing companies the opportunity to impose price spikes by withholding supply. This is essentially the reason prices have increased. Part of the reason these spikes are so pronounced is because demand is very inelastic (which i personally think is partially because consumers are forced to respond to price changes in a very delayed manner due to only receiving monthly summaries of prices, and perhaps demand would be a little more elastic if real-time-pricing was introduced, which is something that I would have like to have seen in the review). There are many ways to address this issue, most of them lean towards a less competitive market though.

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