Gareth Hughes
Do you feel power prices are too low?

Data I tabled in parliament this week shows that power prices have risen 22% since National came to power, yet incredibly the Electricity Authority (EA) have published a report arguing prices have been too low. The EA argue the rampant electricity price rises “since 1985 reflect efforts to gradually lift prices to the levels needed to cover the full costs of supplying electricity.” It’s a fantasy report that would give struggling Kiwis cold comfort.

Geoff Bertram has a brilliant demolition of this fallacy in The Herald:

The central argument the Electricity Authority is making is that if the electricity market had been organised for the past century the way it is organised and run today, with no regulation, then consumers would always have been forced to pay higher prices for their power. It has rewritten the history of the electricity industry since 1907 on the assumption that a 10.1 per cent return on all capital ought to have been charged, and that because this was not done, consumers were supplied “below cost”.

This completely misses the point. Generations of New Zealanders funded the construction of the system on a pay-as-you-go basis and enjoyed lower electricity prices than a commercial industry would have offered, without running up any unsustainable debts. There was no need for higher prices to cover a “return on capital” because that was not how the industry was run in those days.

Past Governments saw no need to make a profit on their electricity expenditure because the big payoffs came not in the form of profits collected but in the form of higher living standards and faster economic development for the mass of New Zealanders, whose interests the Government represented.

 

The EA’s report is a strange, very ideological way to look at history and a ’political shot across the bows’ of the Green & Labour NZ Power plan. They argue that hydroelectricity was costly to construct and shouldn’t have been built to the degree it was in an ‘efficient’ market. The reality is, it was built, we have it now and with very low running costs it is earning super profits for electricity companies. You wonder if in a pique of neoliberal purity some in the EA consider demolishing the dams and starting again because they aren’t the most ‘efficient’ option over the last 100+ years under current models.

I asked Energy Minister Simon Bridges in Parliament this week if he agreed with the Electricity Authority that households have been paying too little for power in the past and how has this issue been corrected under the current Government. It’s a serious issue, with around a quarter of households in energy poverty.  Last year alone 42,600 Kiwi families had their power disconnected and were left in the cold and dark because they couldn’t afford to pay their rising power bills.

Our power system has evolved over the years, and previous generations of New Zealanders decided the dams were the best option at the time. While the EA report seems mired in their fantasy neoliberal status-quo, NZ Power would continue NZ’s electricity system’s evolution.

Instead of focusing on earning super profits it would focus on reducing prices for households, and getting as close to 100% renewables as we can. Rising power prices under National or cheaper, cleaner power with the Greens – I know which future I prefer.

9 thoughts on “Do you feel power prices are too low?

  1. Following the corporatisation of the NZED in the late 80s by the then Labour government, I worked for Electricorp Marketing in 91/92 before further changes wrought by National governments. I recall the debate around how to price electricity to reflect the cost of assets (even sunk assets) and the need to send price signals to generators to build new generation.

    The need for retail prices that would support the building of new generation, I can understand.

    But the methodology to value generation asset I did not understand. It seemed artificial at the time but the objective was clear: to set as high a value as could be justified. It did not matter that the assets (particularly hydro plants) were a sunk cost. This was at a time when our retail electricity prices were I think, the second lowest in the world. In the interests of economic absurdity, prices were set as if the hydro plants were still to be built and now our electricity prices are amongst the highest in the world.

    The thing that such economic rigidity misses is that the those hydro plants were built as a part of the commons, paid for by all people, for the benefit of all people. What successive governments have done is to commoditise those public assets, transferring ownership and revenue streams from the public good, to private profits.

    This is the real shame of the government ideology at the time, now entrenched in the machinations of the EA.

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  2. The EA may be trying to prove they are capable of producing the dumbest report this year. In some ways, lets hope all other pusedo government reports are more sensible and balanced.

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  3. If electricity or other energy prices are too low, there will not be the incentive to conserve either, so they will be wasted. We need reasonable prices for electricity and fossil fuels to encourage renewables, solar water heating, improvements in insulation and other conservation efforts. Energy poverty needs to be addressed, but not necessarily by lower prices. For example, subsidised insulation schemes can help to break the poverty trap. If the government retains the profit from higher energy prices (e.g. carbon tax), then it can reduce other tax takes or increase benefits.

    Trevor.

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  4. National’s argument is based on short term enrichment of the super rich who have no interest in New Zealand. National is interested in corporate welfare for the foreign owners of NZAS. Is National really interested in fair returns on investment? If so, then why do aluminum producers get their energy at a fraction of the price than the rest of us pay?

    Why indeed. It is because Aluminium is the way the global market allows electricity to be a fungible commodity. When this happens, NZ electricity prices rise to the level of all those everywhere in the world. Which means we don’t have cheap electricity to run electric vehicles, close down coal burning plants, and eliminate fossil fuel burning vehicles.

    In the short term, the recently signed NZAS contract with Meridian allows National to get a higher sale price for Meridian. Is selling off Kiwi assets a sensible economic decision for New Zealand? It certainly is for foreign fat cats enriching themselves on Kiwi resources. Is National defending their interests or those of New Zealand voters? Is National interested in the indisputable evidence of the massive long term economic cost of climate change to New Zealand?

    Of course not. They are not interested in sensible economic policy, just policy that will in the near term enrich the traditional recipients of corporate welfare- the uber rich transnational investor elites.

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  5. There are multiple approaches to this.

    The first sets a price on electricity to encourage the desired outcomes in conservation and generation, and establishes subsidies for individual users who can’t manage to pay for minimums.

    The second makes the efficiency changes in terms of a network of regulations and attempts to keep the price low.

    The third sets a price on CARBON EMISSIONS, and then works through the subsidies needed in a manner similar to option 1, but in this case the generation cost of the hydro or geo power is essentially nil compared with the cost of the power from Huntly.

    The fourth re-nationalizes the electrical power system and takes the profit motive out of the equation, then chooses the price or regulatory avenue to effect changes in consumption. One suggests regulation in this case as it is more amenable to a system that can adapt to creation of an energy backed monetary system. The price on carbon emissions is separately applied.

    The QUESTION is too simple.

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  6. OTOH, the lying money-loving pig-rutting government shills at the EA didn’t even ASK a question about what electricity prices should be. They asked a question about what the “return on capital” should be.

    This is a sovereign nation NOT a corporation and the bastards who are currently running it aren’t competent to hold the offices they currently disgrace.

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  7. Consider a fifth option and take a new approach to influencing corporate behavior. Make whatever you want them to do into a particular kind of money, then reward them for acquiring that money.

    This approach employs auxiliary currency to monetize the behavior that the society values. As a shorthand, let’s call it a energy dream credit. Companies can generate this credit by contributing towards the dream of renewable clean energy that is efficiently used. How are the credits earned? Perhaps the company reduced their power consumption through energy efficiency measures, installed solar or wind power, or enter into a contract with their provider for green electricity. Energy suppliers such as electricity, transportation fuel and heating fuels are awarded energy dream credits for the renewable, non CO2 producing energy they generate.

    At first these credits would have only marketing value for a company- demonstrating how socially responsible they are with an empirical, government verified measure.

    But this not of value only to a company’s marketing department. The next step is make these credits into a tradable auxiliary currency which have value due to a corporate tax payable only in these energy dream credits. Those companies that have insufficient dream credits as a percentage of their energy consumption or production must go to the market to acquire dream credits from companies with a surplus. This provides an additional source of revenue for companies that own dams, windmill or solar farms, or those who consume only green energy, and use it with high efficiency.

    As the tax is progressively escalated, companies generating CO2 or wasting energy subsidize those doing the socially responsible thing- converting to green energy.

    Such an approach uses a game theory approach to regulation. Regulators do not engage in prescriptive rule making, regulated monopoly models, or command control oversight of the economy. Instead, regulators tilt the playing field so that socially desirable outcomes are much more likely. How the market achieves the goals is up to the innovation and aggressiveness of the businesses.

    The same approach could be used for pay equity between the genders and between races.

    The same approach of an alternative currency could be used in trade policy- giving an middle class dream credit for those companies who decide to retain Kiwi workers rather than ship the work overseas and sell the product at a lower price than possible with domestic workers.

    What this does is employ market forces to achieve Green policy goals.

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