Critics slam power report

17:43, Feb 10 2014

The Labour/Greens "NZ Power" plan could actually drive electricity prices up, not down, and would not fix "energy hardship" problems, according to a report commissioned by Business New Zealand.

The report by Sapere Research Group was commissioned by Business New Zealand to see how effectively the electricity market was working.

"The electricity market is now more competitive than at any time in the past," the Sapere report says.

But critics slammed the report as a political attack on the Labour/ Greens NZ Power proposal, which would bring in government control through central planning and a single buyer of wholesale electricity and the single supplier to electricity retailers.

Sapere said NZ Power would put "at risk" the gains made since the electricity market was set up, and "would not be able to deliver on the commitment to reduce prices".

"There is a very real risk that the proposals would result in higher electricity prices and less secure electricity by undoing the achievements that have been made and repeating past mistakes," Sapere's report says.


Business NZ chief executive Phil O'Reilly said they recommended that the present electricity market system be kept, because it was "superior to the alternatives". But there should be efforts to improve price "transparency".

The government should also look at the "nature and size of energy hardship", O'Reilly said.

Labour energy spokesman David Shearer said the Business NZ report could not hide "the unpalatable truth that New Zealand power prices are too high."

"No matter how much the report from Sapere tries to justify the current electricity pricing model, it is clear we must have substantial change," Shearer said. Electricity demand was falling but prices were still going up, "hurting New Zealand families".

"That tells me and the rest of New Zealand that the market is failing," Shearer said. Labour's NZ Power policy would cut household power bills by hundreds of dollars a year and it would lower prices for business by between 5 per cent and 7 per cent.

Wellington academic Geoff Bertram said the Sapere report completely ignored whether consumers were treated fairly. There had been a pattern of reports from the Electricity Authority and now Business NZ, responding to the Labour/ Greens power policy issued last year.

"They are all fundamentally political documents to undermine the Labour/ Greens proposal," Bertram said.

Regulators in countries such as the United States and Britain set prices after asking "what is a fair return on the capital generators have actually invested?".

"The Sapere report does not go there. It instead argues that asset values must be held at today's inflated values," he said.

Independent energy consultant Bryan Leyland said the report was "heavily biased" to the status quo, though it made a number of legitimate criticisms of the NZ Power proposal, which is "a parody of a real single buyer market," Leyland said.

The report was "political" and like the recent Electricity Authority reports into the market showed people in the industry were scared of the Labour/ Greens proposal.

"They are doing everything they can to make sure it does not happen" Leyland said. But sadly the report did not admit there were "real problems" that had to be solved and had cost consumers a lot of money he said.

The Sapere report claimed the market was "doing well" because there had been no power shortages and prices have not risen over the last few years.

"But it fails to mention that the primary reason is that, contrary to expectations, the load has not increased. As is widely acknowledged, New Zealand now has surplus (generation) capacity," Leyland said. That meant generators were not in the usual position to control the market.

Meanwhile, the Sapere report says there was not enough action to address "energy hardship" or "fuel poverty" for some power consumers living in homes that are "too cold and too damp".

An Otago University study has suggested as much as 23 per cent of all households are in some form of "energy poverty".

One of the Sapere report authors, Toby Stevenson said much of the fuel poverty came about because when houses were being built in the past, power was much cheaper.


Business NZ report on electricity market:

Secure supply, no blackouts or crisis in dry years from energy market failure

Competition has been restraining retail prices since 2010 Investment in generation, transmission and distribution is keeping ahead of demand

But retail electricity price increases in the past decade "have not been well explained or justified" and were not "transparent enough".

Not enough action to address "energy hardship" or "fuel poverty" for some power consumers living in homes that are "too cold and too damp".

Labour/Greens ‘NZ Power' plan:

Supply would be underwritten by government and costlier than the current system

Cutting consumer prices in the short term by central control of wholesale purchasing would ultimately put a greater burden on taxpayers and higher consumer prices long-term

Energy hardship felt by some consumers would not be fixed by NZ Power policies much, if at all.