Issues

Power
Failure
wa rren judd is a north & south contributing writer.

4 8 | N O R T H & SOU T H | S E P T E M B E R 2 0 1 4

getty

ken downie

Rural Taranaki (far left) and

rural Oregon, USA (below).
Why do Americans in remote
areas pay half as much for
electricity as New Zealanders?

ew Zealands power consumption

actually went down last year but not
your bill, right? So why, in a country with
one of the worlds most-abundant renewable
energy sources, is your electricity costing you
twice as much as an American household, in a
country with many far-flung, sparsely populated
locations? As you brace yourself for another skyhigh winter power bill, Warren Judd explains
why youre right to be feeling ripped off.

I guess youd pay a bit for power here,

Don? We were standing on his drive days

before Christmas, ankle-deep in fresh
snow and the temperature was far below
freezing. Yeah, powers pretty pricy, runs
to $50 to $70 a month. Gas is even more
but we use it for heating the house.
My friend Don lives in Roanoke,
Virginia, a medium-sized city just east
of the Appalachians, at a similar latitude
to Hamilton. How could his power bill
be half mine when I live in the winterless
north of New Zealand and use power as
parsimoniously as Jeanette Fitzsimons

N O R T H & SOU T H | S E P T E M B E R 2 0 1 4 | 4 9

sprays Roundup?
I decided to look into it
In the United States, the average residential electricity price is US12.09 cents
per kilowatt-hour (kWh). Living on the
rural fringe of Auckland hardly the
boondocks I pay NZ32 cents per kWh.
Sure, the New Zealand dollar is worth
less than the greenback, but US power
is still half the price of mine and Consumer NZs Powerswitch tells me Im
getting a fair rate for my area. The national average residential price is 28.2
cents a kWh, ranging from 38.2 cents in
Balclutha to a whisker under 24 cents
in nearby Dunedin.
In the US, Hawaii is an outlier on 37
cents, but there are plenty of mainland
states where the price ranges from 8.7
cents (Washington) to 10 cents for a
kilowatt-hour.
Apart from price, theres another big
difference between electricity supplies
in New Zealand and the US how
theyre generated. Last year in the US,
39 per cent of electricity came from coal,
27 per cent from gas, 19.5 per cent from
5 0 | N O R T H & SOU T H | september 2 0 1 4

nuclear, six per cent from other renewables, and the balance from minor sources like diesel generation. In clean green
New Zealand in the March 2014 quarter,
the main contributors to the nations
electricity were hydro 57 per cent, gas
17 per cent, geothermal 16 per cent,
wind five per cent and coal 3.5 per cent,
with a smidgeon from sources like wood
and biogas. Since we class geothermal
as renewable, that gives us 78 per cent
from renewables, compared with only
12 per cent in the US.
Most US coal is now mined in remote
places like Wyoming and railed for hundreds or thousands of kilometres to generating plants in the Midwest and eastern seaboard (Ive watched the trains
and thought of the CO2) and yet its
apparently still much cheaper than our
rainwater.
Hydroelectric dams cost more to build
than thermal power plants but a wellbuilt dam lasts indefinitely, so elsewhere
in the world hydro is considered cheaper
than coal, gas and nuclear.
Of course, theres more than just the

getty

$3.94 transmission services, $18.06 distribution services, and $2.60 taxes).

In New Zealand, transmission costs
(from Transpower) and distribution
charges are lumped into power bills as
a lines charge and theyre significant.
Nationally, they average 11.6 cents per
kWh, ranging from 7.8 to 17.8 cents. For
a typical household buying 9000 kWh
a year for $2500, annual line charges
are $1044 or $87 a month.
Over much of the South Island, lines
charges are significantly lower than in
the North. This could well be related to
the fact that almost South Island lines
companies are owned by consumers or
municipalities. In North Island urban
areas, investor ownership is common.
In the US this year national transmission costs are estimated to be 1.1 cents
per kWh, distribution costs 3.1 cents and
generation costs 5.6 cents.

Above: Most US coal is now mined in remote places like Wyoming and railed for
hundreds or thousands of kilometres to generating plants in the Midwest and eastern
seaboard and yet its apparently still much cheaper than New Zealands rainwater.
Below: More than half of New Zealands electricity is generated by hydroelectric
plants, such as the Clyde Dam in Central Otago.

Our electricity establishment

often claims New Zealand power prices

are not high by world standards. True,
Tonga pays about 55 cents per unit and
the Solomons double that. Denmark and
Germany pay slightly less than Tonga.
Nonetheless, its misleading because
most countries lack our hydro resource.
How do we compare with those that
generate significant amounts of hydroelectric power?
Norway is intriguing. More than 98
per cent of the power it generates is hydro, but the power it uses is 42 per cent
fossil, 36 per cent hydro and 22 per cent
nuclear. Its connected to the European
grid with cables to the Netherlands and
Sweden (others to Germany and Britain
are planned, which puts the Cook Strait
cable in perspective) and it trades power
with a Europe thats hungry for renewable energy. The average residential
price is NZ17.3 cents per kWh made up
of 6.6 cents for the power, 5.2 cents for
lines charges, and 5.4 cents tax.
Canada is probably the best comparison with us. It generates 60 per cent of
its electricity from hydro, 20 per cent
from fossil fuels and 15 per cent from
its home-grown CANDU nuclear reactors. Residential prices range from NZ7
cents per kWh to 16.5 cents, with an average of 10.5 cents (excluding taxes of
seven to 13 per cent but including distribution charges).
Householders almost always pay more

getty

getty

Power lines in the US have to service far-flung communities.

cost of generation pushing up our electricity bills. The Cook Strait cable is
costly, and its regularly explained that
distribution costs are high in a place like
New Zealand with its choppy terrain,
few people and long distances. That may
be fair comment with respect to a country like Great Britain, but not the US.
Pretty much the entire west, probably
two-thirds of the country, is much more
sparsely inhabited than New Zealand.
Even in California, the most populous
state with 38 million, most people live
close to the coast or in the Central Valley. People are thin on the ground in
northern and eastern California, and
even thinner in the likes of Nevada, Utah
and Montana. And New Zealand is now
one of the most urbanised countries in
the world, with 87 per cent of us in
towns or cities.
Burns, Oregon, is a typical town in the
dry western US slightly seedy and
straggling along a few kilometres of
Highway 20, the longest road in the
country. It has 3000 people and is 200km
from any other town larger than a gnats
whisker north or south, east or west. Its
the county seat of Harney County, population 7200, covering 26,500 square kilometres, 50 per cent larger than Northland and Auckland combined. Its
remoter than anywhere in New Zealand
and its power comes from the Bonneville
Power Administration, 400km north.
What does power cost? Distribution
charges are $US21.50 a month and power
is seven cents a unit for homes.
Incidentally, Bonneville Power, established in the 1930s within the US Department of Energy and charged with supplying electricity at cost to local utilities,
companies and co-ops, is something like
our old Electricity Department (NZED).
It produces half of the electricity in the
Pacific Northwest and is also responsible
for major transmission lines.
The Oregon Trail Electric Co-op, one
of two power sellers in Burns, was started
in 1987 by three citizens of another rural
town, who initiated a local buyout of a
disenchanted utility company. It services
an area half the size of the North Island
with only 33,000 electricity meters.
For comparison, I recently recontacted Don about his latest power bill.
He paid $US64.92 for 531 kWh (12.2
cents per unit, comprising $24.64 for
generation services, $15.68 fuel factor,

than commercial and industrial customers, but in New Zealand that differential
is particularly marked. The latest comprehensive data (2011) has industry paying 11.5 cents per kWh, commercial users
18.8 cents, and householders 28 cents (all
including GST).
It has not always been so. From the mid1970s (when prices for all users were a
glorious one to three cents) until 1993,
commercial users paid more than householders. Residential prices started to

climb in 1984, and accelerated from 2000.

Adjusting for inflation, industrial prices
have fallen slightly since 1979, commercial prices have fallen considerably and
residential prices have skyrocketed.
The Ministry of Business, Innovation
and Employments latest international
figures show the gap between industrial
and residential prices to be particularly
wide, but they draw solace with, New
Zealands electricity prices are comparable with the United States in terms of
N O R T H & SOU T H | september 2 0 1 4 | 5 1

mike white

Why have our household power prices

Wellington economist Geoff Bertram has studied our electricity industry for
decades. He says power companies profit-friendly accounting systems mean
residential customers are being charged an excess of $1 billion annually.

the differences between residential and

industrial prices.
In fact, this is completely erroneous
because they give the US residential price
as NZ27 cents, whereas in fact its 14.5
cents. The US industrial price (NZ8.3
cents per kWh) does nothing to promote
its local argument. In Parliament on April
18, 2013, it was stated that New Zealand
had the second-largest gap between residential and industrial power prices in
the OECD.
Power prices to Kiwi householders
have risen much more sharply than in
5 2 | N O R T H & SOU T H | september 2 0 1 4

most countries. In 1990, a unit of electricity cost 9.1 cents. By 2013, it averaged
27.4 cents a 300 per cent increase. According to the Reserve Bank, inflation
totalled 67 per cent over those 23 years.
Labour has produced a graph from International Energy Agency data showing
that New Zealands household power
prices have risen faster than in any of the
agencys other 28 member countries.
Perhaps spurred by the new Labour/
Green power policy and ongoing public
disquiet about electricity prices, the
Electricity Authority recently released

risen so sharply over the past three decades? Although the Electricity Authority
report gives few indications, according
to its CEO Carl Hansen, rising fuel costs
are the main culprit. Since water and
geothermal steam are our principal fuels
(never falling below 65 per cent of generation capacity), this explanation does
not seem entirely satisfying. And remember that coal and gas in the US produce cheap power.
Bertram has a quite different explanation for rising prices. Back in 1999, the
competing SOEs, Meridian, Genesis and
Mighty River Power, were set up. Unlike
the old Electricity Department, whose
task was to supply the country with reliable electricity at cost, SOEs were businesses, charged with making profits for
the government. Establishing competing
SOEs was meant to act as a brake on the
government demand for profit while
still returning one nonetheless. Tricky.
According to Bertram, the new SOEs
were very lightly regulated in a sort of
gentlemens agreement that they behave
reasonably, and it was left up to them
as to how they balanced profiteering for
their master with charging consumers.
Bertram considers the method the SOEs
adopted breaches that understanding.
The assets of ECNZ were transferred
to Genesis, Meridian and Mighty River
Power in April 1999 and some to Contact

earlier at their book value of $4.5 billion.

The new enterprises lost little time in getting their assets revalued by professional
services firm PricewaterhouseCoopers,
using a process termed fair-value accounting. Essentially, this assigns a value based on future earning potential. In
the case of Mighty River power, assets
just acquired for $720.6 million suddenly became worth $1332.2 million.
The significance of this is its common
for electricity prices to be set at a level
that gives a return on assets of about 10
per cent per annum. Hence rising asset
valuations become a justification for increasing power prices. And once those
prices have risen, then the future earning
potential of your hydro dams has jolly
well increased as well, so in another year
or two you need to revalue again. And so
it spirals upwards. Excellent for profits,
not so hot for customers.
Not only Mighty River, but Meridian,
Genesis and the privately owned Contact
and Trustpower have all followed similar
paths, according to Bertram. He has
plotted in detail how each generatorretailer (gen-tailer) has regularly revalued its assets so 1999s $4.5 billion
became a whopping $23.5 billion by 2012.
Bertram notes that using this sort of
regular asset revaluation to set pricing
wouldnt be permitted in many countries, including the US. There, your 10
per cent return would be acceptable but
only on what youd paid for the assets,
plus what youd spent on maintenance,
new plant etc.
This historical cost accounting can be
calculated for the New Zealand gen-tailers and Bertram has worked it out as giving a total asset value of $12.1 billion today. He comments that the additional
$11.4 billion in revaluations indicates that
residential customers are being charged
an excess of $1 billion annually, relative
to what we would be paying under oldfashioned rate-of-return regulation.
bertram is not the only academic to

have reservations about our power industry. Between 2005 and 2009, Professor
Frank Wolak of Stanford University conducted an investigation into New Zealands wholesale electricity industry for
the Commerce Commission, following
complaints in 2004 by 22 heavyweight
industrial users. Their prices had risen
little relative to householders, but they
had the ear of the Labour government.

getty

a lengthy investigation of historical power prices. Its report concluded that

householders had been undercharged
for decades but are now paying their way,
whereas commercial users were overcharged in the 80s but now, along with
industrial users, are being significantly
undercharged. The authority seems
somewhat bemused how this could be
in a world of such cut-throat competition
as the local electricity market.
Wellington economist Geoff Bertram
has studied our electricity industry for
decades and is scathing about the report.
He has commented that its only when
viewed from the distorted perspective
of needing to make a 10 per cent annual
return on investment that householders
have been undercharged, and our electricity system was never set up that way.
Rather, the governments historic aim
was to provide electricity at cost, winning from higher taxes as living standards rose and industry prospered.

A waterfall near the hydroelectric power plant of Vemork, Norway.

More than 98 per cent of the power Norway generates is through hydro
stations, but the power it uses is 42 per cent fossil. It trades power
with other European nations hungry for renewable energy.

Using Wolaks work, the Commerce

Commission found that between 2001
and 2007, each generator had periodically
managed to bolster prices (termed
exercising unilateral market power) to
the tune of $4.3 billion (18 per cent of the
value of the wholesale electricity market
for the six and a half years studied) above
what would have been charged in a truly
competitive environment.
This behaviour happened mostly in
dry years. The commission proclaimed,
The exercise of market power is found
to be both recurring and substantial.

However, the commission also decided

the hiking of prices had not been carried
out for an anti-competitive reason, so
nothing illegal had been done, and no
further investigation was warranted.
Charging high prices, without an anticompetitive purpose, is not a breach of
the Commerce Act. The commission also
decided Wolak need not proceed with
a planned investigation into retail electricity prices because hed noted that
when the gen-tailers boosted wholesale
prices, they then gradually raised retail
prices. I imagine the justification was
N O R T H & SOU T H | september 2 0 1 4 | 5 3

cause of high prices, do not appear to be

the predominant factor in explaining the
recurrent exercise of market power.
In other words, the generators lie.

getty

A hydroelectric power plant in Manitoba, Canada, in winter. Canada is a good comparison with New Zealand as it generates
60 per cent of its electricity from hydro. Yet its average residential power price is less than half the New Zealand average.

to preserve retail margins although, of

course, the wholesalers and retailers are
the same companies.
Wolak commented that unravelling
the data took more effort than all similar
investigations he had previously undertaken, namely in California, England,
Wales, Australia, Colombia, Spain, Pennsylvania, Maryland and New Jersey. Fair
to say, labyrinthine complexity often
masks either inefficiency, corruption or
some other malfeasance.
Our wholesale electricity market

where the generating arms of the gentailers make their profits is certainly
complex.
Every day is divided into 48 half-hour
trading periods, and for each period
electricity retailers advise how much
they want to buy; and sellers, how much
they plan to generate and at what price.
Transpower co-ordinates this market.
Imagine the period 10.30am to 11am
tomorrow. Transpower knows retailers
want to buy two GWh of electricity. Now
5 4 | N O R T H & SOU T H | september 2 0 1 4

it builds what it terms a stack of sellers

offers. Lets say Meridian offers 1 GWh
at $50 per MWh, Contact 0.8 GWh at
$55, Genesis 0.7 GWh at $65, Mighty
River 0.75 GWh at $72 and Trustpower
0.6 GWh at $78. Transpower accepts the
Meridian, Contact and Genesis offers to
get its 2 GWh requirement, but it will
pay for all of that power at whats termed
the marginal rate of $65 per GWh the
highest price required to obtain the
amount of power it needs. So in that
timeslot, Trustpower and Mighty River
earn zilch while Meridian does very nicely because, being a low-cost hydro producer, it was happy to get $50 for its
power whereas its actually going to be
paid $65.
This seems bizarre. When tenders are
called for hospital supplies or road building, the lowest tender wins. Its this pricing system that underlies claims that
generators make windfall profits. And
its in the manipulation of this system
that generators exercise market power.
The generators retort that good profits

are necessary to pay for new plant.

In pr ac tic e , the system is more

complicated. For every trading period,

each generator can submit multiple bids
with different prices. Prices and amounts
of power can be changed until half an
hour before the trading period. But heres
the real kicker: the grid contains 52 grid
injection points, usually power stations,
where power is fed in, while on the other
side, there are 196 grid exit points where
power flows into local distribution
networks. Prices vary between exit
points, because the further electricity
travels along cables, the more is lost. And
in some places, transmission lines or
transformers constrain the amount of
power that can be moved, which can
push up prices. Collectively, these 248
points are known as nodes. Transpower
creates stacks for all nodes every 30
minutes!
The Commerce Commission also
found that transmission constraints,
often cited by market participants as a

lines charges are high. The reason, says

Bertram, is because lines companies
descendants of the old electric power
boards have pulled a similar trick to
the gen-tailers.
Between 1994 and 1999, revaluations
doubled the value of lines company assets and in 2012 their assets were valued
at $8.8 billion. Since 2003, the Commerce Commission has taken an interest
in lines charges, because although its
now easy to switch power companies,
lines are a local monopoly.
However, the commission has accepted
their revaluations and allows them to
increase prices so that they get a healthy
return on asset values. Many businesses
would welcome such a regulator.
In 2012, Auckland lines company
Vector was ordered by the Commerce
Commission to reduce prices by 10 per
cent. Vector (once the Auckland Electric
Power Board) now has additional interests in gas and fibre optic cables. It has
complained that although it reduced
lines charges as commanded, electricity
retailers did not pass this reduction on
to consumers.
Lance Wiggs, the founder of electricity retailer Powerkiwi, writing about
Vector in the National Business Review,
commented, any reasonable assumption for those numbers [earnings from
Vectors gas and technology operations]
leaves an absurdly high margin for their
electricity distribution business.
And its not just generation and lines
charges that have risen. Bertram has
compared the cost of retail services
in 1990 and 2010. These include retailers mark-ups, metering costs, market
governance and market services. In
1990, these costs were 0.9 cents per kWh
(in 2011 dollars), but 20 years later they
were 8 cents for householders.
Of course, the very existence of a group
of competing SOEs adds substantially to
costs. Each has its own overpaid CEO
(salaries run from $1 million to $1.5 million) and board, its own bureaucracy, its
own logo-plastered fleet of cars, spin
doctors, and marketing and advertising
budget to compete against other SOEs.
Cute televisual pukeko cant come cheap.

New Zealand Herald / presspix/ Greg Bowker

Earlier, we noted that New Zealand

Mighty River Powers chief executive Doug Heffernan and chair Joan Withers
deliver the power-generating companys annual result last August.

Its not just the plurality of SOEs that

has added to costs. Until the corporate
reform era, the electricity supply chain
was simply the NZ Electricity Department
to power boards to consumers. Now we
have generators, Transpower, retailers,
lines companies, metering companies,
regulators all dining on consumers.
I suspect that government (Treasury,
Labour and National) is much more
complicit in electricity price rises for
householders than is widely acknowledged. Governments have an insatiable
thirst for money. Once ours embraced
SOEs, they wanted higher dividends.
A window into this opened during the
Solid Energy collapse in 2013. A 2009
letter tabled in Parliament from Treasurys Crown Company Monitoring Unit
recommended ministers communicate
a strong expectation that SOEs increase
gearing and dividend yield.
Two days later, the minister wrote to
the head of Solid Energy saying he
wanted all SOEs to increase their gearing (debt levels) and to standardise and
simplify the dividend policy for all SOEs
to ensure that a more consistent share
of profits is returned to the Crown as
shareholder.
Meridian, Genesis and Mighty River
Power would also have received the directive to increase dividend payments
to government. As for the asset revaluations, government did little to rein in
the process because, as the sole shareholder, it was the main beneficiary and

nothing illegal was being done.

But gaining increasing revenue from
electricity sales has been only one Crown
concern. Every government wants to reduce unemployment and boost the economy, so seeks low power prices for business. Recall the $30 million pulled out
of the coffers in 2013 to keep Rio Tintos
Tiwai Pt smelter buzzing. Yet since
the Global Financial Crisis, electricity
demand has weakened and last year, the
countrys power consumption fell by one
per cent.
Faced with a demand to make more
money but protect jobs in a weak market, theres really only one solution:
raise prices for householders (who have
little lobbying power) but keep them
low for businesses exactly whats happened. Its likely successive governments have encouraged SOEs to follow
this path.
American Roy Hemingway, head of
the supposedly independent Electricity
Commission (the precursor of the Electricity Authority), complained of intolerable interference from Labour ministers during his reign from 2003 to
2006. For instance, Hemingway spoke
of a meeting with then-Energy Minister
David Parker in June 2006 at which the
minister read through several pages of
notes outlining what he wanted the
commission to do, including speeding
up decision-making over the Waikato
transmission line and giving greater
deference to Transpower.
N O R T H & SOU T H | september 2 0 1 4 | 5 5

getty

Generators at the Bonneville Dam in Oregon, which supplies cheap, sustainable energy to a vast region. The dam itself was
built and is managed by the United States Army Corps of Engineers, one of the worlds largest public engineering agencies.

getty

Its the desire to do something about

A ranch outside Burns, Oregon. The powerlines carry power from a

Bonneville Power Administration plant, 400km north. Distribution charges
are $US21.50 a month and power is a low US7 cents a unit for homes.

5 6 | N O R T H & SOU T H | september 2 0 1 4

inexorably rising power prices that has

inspired the Green and Labour proposals to establish a body NZ Power that
would buy from generators on behalf of
most consumers at prices that would
give generators a fair but modest return.
The plan is likely inspired by the claim
businesses get low prices because as big
users they can negotiate better deals.
Who could have more negotiating heft
than a single buyer taking most production? According to Labours plan, NZ
Power would also be able to compel
generators to produce electricity (thus
removing market power from them),
organise new generation capacity, and
regulate and set prices.
Hostility to the new proposal has been
widespread from business. Many claim it
will destroy investor value and profits,
and cast a pall over investment in all largescale enterprises here. Might government
intervene in other industries? The proposal has already undermined the prices
obtained for the SOE share floats, some
say by a billion-plus dollars.

getty

Perhaps the most

damning indictment of
rising power prices lies
in Treasury records.
Total revenue for the
three SOE generators
in 2000 was $1.51
billion, but by 2013,
it had quadrupled
to $6.1 billion.

Wind at five per cent is a small but growing renewable energy

source in New Zealand.

But I wonder if there isnt another reason industry opposes the idea of a single
retail buyer. Recall the Electricity Authority was puzzled why industrial users are apparently being undercharged.
Perhaps householders are subsiding
prices for business users and such subsidies might become difficult with the
single-buyer model.
Although Bertram and Wolaks findings have inspired the Lefts initiative,
Wolak doesnt agree with it, saying its
likely to unleash new problems. He
points out that a single buyer has little
real power unless they can say no to
a deal and NZ Power wont be in that
position. He favours tighter regulation
of the monopolies (Transpower and
lines companies) and real competition
between gen-tailers.
To be fair, the government did make
changes following the Commerce Commissions 2009 report and a ministerial
inquiry the same year. It forced some
gen-tailers to shuffle generating plants
to try and reduce opportunities for exercising unilateral market power, and it
was made easier for consumers to switch
retailers. We now move between retailers with the aplomb of speed daters, a
fact the government heralds as proof that
our electricity market is ultra-competitive. Nonetheless, as with petrol, companies raise prices with the harmony of
synchronised swimmers and prices
keep rising.
5 8 | N O R T H & SOU T H | september 2 0 1 4

Just how much has government received in dividends from its electricity
SOEs? From 2000 to 2013, it received
$950 million from Mighty River (which
had total revenue of $12.85 billion so 7.4
per cent of revenue); a stellar $3.47 billion
from Meridians $25.35 billion (13.6 per
cent); a paltry $282 million from Genesiss
$22.44 billion (1.25 per cent) and a solid
$847 million from Transpower (8.8 per
cent of its total revenue of $8.66 billion).
Apart from Genesis, these results look
pretty good.
Of course, the government also reaps
15 per cent GST and collects tax from
all companies involved, including SOEs.
Although the asset sales will diminish
government revenue, the Crown will
still be doing nicely out of electricity.
Perhaps the most damning indictment
of rising power prices lies in Treasury
records. Total revenue for the three SOE
generators in 2000 was $1.51 billion, but
by 2013, it had quadrupled to $6.1 billion.
Over that time, power consumption rose
from 38,000 GWh to 42,500 GWh, a mere
12 per cent increase (so there was little
need for much new generation capacity)
and inflation totalled 39 per cent.
Revenue for the three SOEs from 2000
to 2013 was an eye-watering $60.65 billion, of which the government got only
$4.7 billion. Genesis has invested some
money in oil and gas, but it does seem as
though government has been squeezing
the toothpaste at the bottom and not as

much as expected has oozed out.

Why do I pay twice as much for electricity as my friend Don in Virginia? Business will argue that New Zealand is small
and the US is a market of 315 million.
Having poked around the US quite a bit,
I think its as parochial and small as
New Zealand for the most part. Its thousands of Burnses and occasional Aucklands. They have probably got the mix
between public service, competition and
regulation better sorted in the electricity sector than we have.
Although were told that the operation
of the free market charge too much and
somebody else will come in with a lower
price and cut you out will curb excess,
it can be difficult to get a market operating properly. Its easy for a few players
to unofficially co-operate in keeping
prices high, hence the Commerce Commissions preoccupation with anti-competitive behaviour.
Given the shortcomings of the free market, deft regulation by a disinterested
regulator is required to control greed. Our
electricity regulator the government
has been neither disinterested nor determined, so our electricity industry has
become a good place for it to make money,
along with other generators, retailers,
lines companies and the rest.
Recently, on Radio Nationals Morning
Report, there was talk of a new row over
power charges. Labour, with a newfound amnesic rectitude, is claiming that
Transpower is increasing payments to
the government when it should be reducing prices to consumers. Transpower
correctly retorts that their prices are set
by the Commerce Commission.
Expect more such stoushes and consider generating your own power with
rooftop solar panels.
+