Nationalise electricity

20:52, Aug 31 2009

Why was the biggest billion dollar rip-off New Zealand has ever seen dwarfed late last week with reports of a service station manager running off with a mere $10 million from a bank?

To be honest I'm not worried about the bank. It lost the equivalent of less than 2% of its annual profit in a bank mistake exploited by a customer.

But who is looking out for New Zealanders who have been ripped off to the tune of $4.3 billion in inflated electricity prices between 2001 and mid-2007?

The rip-off is revealed in a Commerce Commission report released last week after a 4 year investigation into the anti-competitive behaviour of electricity providers in recent years.

"The Commission considers that each of the four largest gentailers (generator-retailers) - Contact, Genesis, Meridian and Mighty River Power - is likely to have held substantial market power on a recurring basis, particularly during dry years," said Commission Chair Dr Mark Berry last week.

Why was the biggest billion dollar rip-off New Zealand has ever seen dwarfed late last week with reports of a service station manager running off with a mere $10 million from a bank?

To be honest I'm not worried about the bank. It lost the equivalent of less than 2% of its annual profit in a bank mistake exploited by a customer.

But who is looking out for New Zealanders who have been ripped off to the tune of $4.3 billion in inflated electricity prices between 2001 and mid-2007?

The rip-off is revealed in a Commerce Commission report released last week after a 4 year investigation into the anti-competitive behaviour of electricity providers in recent years.

"The Commission considers that each of the four largest gentailers (generator-retailers) - Contact, Genesis, Meridian and Mighty River Power - is likely to have held substantial market power on a recurring basis, particularly during dry years," said Commission Chair Dr Mark Berry last week.

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"Each of these companies has the ability and incentive unilaterally to exercise market power and increase wholesale prices during certain periods. The price increases in dry periods are well above any increases in input costs, including the higher opportunity cost of water when hydro storage is low. However, the Commission concludes in the case of this investigation that the gentailers are using that market power to maximise their profits in a purely legitimate way within the current market structure, design and rules," said Dr Berry.

The Commission therefore concluded that while we have all been fleeced to the tune of $1000 for each man, woman and child, this behaviour did not meet the criteria of 'taking advantage' of market power for a proscribed purpose, namely the hindering or deterring of competitors, under section 36 of the Act, and is therefore not a breach.

Energy Minister Gerry Brownlee tells us not to worry because he already has a review of the "electricity market" underway and will bring proposed changes to stop the price-gouging.

We've heard this all before. There will be a bit of tinkering but customers will continue to be exploited by private companies and SOEs with profit-driven motivations rather than quality service provision.

Max Bradford's name always comes up in this context. Bradford set up this artificial electricity market in the late 1990s with a host of companies with flash names, corporate logos and alleged "customer-focus".

In a country of just four million people it was marketised stupidity. Labour followed on with nine years in government and allowed electricity prices to rise on average at five percent above the rate of inflation since 2000. 

Labour will have been relieved the Rotorua runaways took over the headlines from their own shameless silence at the exploitation (is there any other word?) of electricity customers. The gentailers and those who slavishly follow markets will be relieved too.

Full nationalisation of electricity generation and supply is the only way to protect customers and shift the focus from price gouging to service provision for what is an essential community service.