Kiwis 'pay too much' for power

Fairfax Media

PRICEY POWER: An energy consultant says a new academic paper shows New Zealanders are being "ripped off" when paying for electricity.

Relevant offers

Electricity suppliers have the ability and incentive to use their market power to make large wealth transfers from consumers to themselves, says leading power sector expert Professor Frank Wolak.

The Stanford University professor says there is evidence the four large suppliers SOEs Meridian, Genesis, Mighty River Power and listed Contact Energy have used the wholesale market system to raise prices.

And the amounts, he said, were "economically significant".

Wolak's comments are contained in the abstract of a paper he delivered to a power conference organised by the University of California's Energy Institute in March.

They also appear in the draft of a paper he delivered shortly after at the Massachusetts Institute of Technology.

The university rejected requests from New Zealand for a copy of the paper actually delivered, and the web-posting of the two documents were later taken down.

Both documents are dense academic treatises, and pretty hard reads. But the interest in what Wolak says is fired by the fact that he has been engaged by the Commerce Commission to investigate the workings of the electricity market after complaints about high power prices, excess profits by generators, and allegations of uncompetitive behaviour.

A commission spokesman told the Sunday Star-Times that Wolak's work would be only part of the evidence available to it as it prepares its own report.

But while the release of that report continues to drag on, critics of the electricity market and its participants make hay with Wolak's comments.

Bryan Leyland, an energy consultant and critic of the present electricity market, said Wolak's paper confirmed that the structure of the electricity market allowed generators to increase prices well above what would exist in a truly competitive market. "Which is another way of saying consumers are being ripped off."

He said evidence that suppliers were offering wholesale prices up to $20 higher than usual contradicted recent Electricity Commission and Ministry of Economic Development reports.

"We have been told the market must be working because it was delivering prices at the long run marginal cost," said Leyland. "But no, they are well above that and are being manipulated."

Ralph Mathes, of the Major Electricity Users Group, said it came as no surprise to hear that electricity suppliers had market power. "The next question is, do they exercise it, and it seems they do."

He said the commission faced difficulties if it decided there had been abuse in the exercise of that power.

There had been such allegations in many electricity markets around the world, "and as far as I know there has never been any successful prosecution of generators on these matters", he said.

Electricity consumers advocate Molly Melhuish said there was no question that generators were charging retail and small and medium business customers what they could bear.

But while government spokesmen said they wanted maximum benefit from electricity SOEs in terms of dividend payments, the more difficult it was for them to say generators were abusing market power. "So I blame the government, not SOEs, at the moment," she said.

Leyland said: "You could argue all generators are doing is playing by the rules. So you don't blame the generators, you blame the people who designed the market."

- © Fairfax NZ News