Scoop Election 08: edited by Gordon Campbell

Gordon Campbell on lurching towards the centre on power prices

April 23rd, 2013

Anyone looking for legacy traces of the late Margaret Thatcher in New Zealand politics will have found them in the government’s scare tactics – “a lurch to the left” – being used to denigrate the Labour/Green plan to crack down on energy price profiteering. What about the government’s own prior lurch to the right – as its asset sales programme opened up state energy companies to price profiteering by private investors? No, there has been no discernible mention of that. Lurch wise, a movement to the left to counter a pre-existing lurch to the right sounds to me like a correction to the centre.

Finance Minister Bill English claim on RNZ this morning that all other countries are moving towards de-regulation of their electricity markets – allegedly, because it is something too complex for central government to manage – will have sounded highly amusing to anyone from say, California. In 2000 and 2001, California suffered a catastrophic electricity crisis in which wholesale electricity prices at one point rose by 800% on the back of market manipulation by private investors. This was not caused by any failure of central government to plan for generating capacity. At the time of the crisis, California reportedly had an installed generating capacity of 45GW, while public demand was running at only 28GW. However, a demand supply gap was then artificially created by a number of private sector energy companies – primarily, by one called Enron – in order to create an artificial shortage.

Energy traders took power plants offline for maintenance in days of peak demand to increase the price. Traders were thus able to sell power at premium prices, sometimes up to a factor of 20 times its normal value. Because the state government had a cap on retail electricity charges, this market manipulation squeezed the industry’s revenue margins, causing the bankruptcy of Pacific Gas and Electric Company….The financial crisis was possible because of partial de-regulation legislation instituted in 1996 by the California Legislature…..Enron took advantage of this de-regulation and was involved in economic withholding and inflated price bidding in California’s spot markets. The crisis cost between $40 to $45 billion.

So…the California energy crisis was actually set in motion as an experiment in partial de-regulation by a right wing state legislature. Far from Bill English’s claim that electricity regulation is too complex for governments, the California example goes to show that the pricing of electricity is far too important to be thrown over to the investment whims of a ‘free’ market that is open to price manipulation by a bunch of private investors – who, if given the chance, will simply screw consumers into the ground.

That’s what the Greens and Labour have concluded. They have decided that the price paid by electricity users is too important to be further exposed to price gouging and profit taking by private investors. Incredibly, that position needs to be defended. Because… such has been the lurch to the right in New Zealand politics over the last 30 years, the need to provide investment ‘certainty’ and thus remove any element of actual risk from profit speculation by a small minority of investors, is being treated as more important than the affordability of essential power services for the majority of voters.

To repeat: what the Greens and Labour are proposing is a mechanism to remove from the power equation the ability to create and maintain artificially high prices and profits. Any loss of value that energy companies are currently experiencing in the shadow of the Greens/Labour proposal should be taken as a measure of the artificial value that has been built on the back of price gouging. Preserving the status quo means keeping that system in place – and watching impotently from the sidelines as the asset sales programme then proceeds to rachet it up. Given the chance, most consumers would probably prefer not to keep on inflating the value of energy companies by paying more than they should on their power bills every month. Pharmac intervenes in the market to keep drug costs under control. It’s time that a New Zealand government did likewise for power costs.

ENDS

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    1. 3 Responses to “Gordon Campbell on lurching towards the centre on power prices”

    2. By Reactionnaire on Apr 23, 2013 | Reply

      This plan is a step forward, but doesn’t do much for prices ($300p/a discount per household)… We are paying at least twice the price that we should thanks to the profiteering pricing and re-valuation methods (“optimised deprival value” i.e. replacement cost, here of assets long bought and paid for by NZ public). These were outlawed in the US in 1944 after similar abuse.

      Until a firmer regulatory framework is put in place which enforces “cost-plus” (with historic cost for historic assets and actual cost for new assets) pricing, we will continue to be priced-gouged in all these natural monopolies(Electricity, but also broadband a la Chorus etc).

      It’s an absurd ball and chain weighing down the economy and benefiting, in many cases, our own SOEs (height of absurdity) as well as private shareholders (Contact and soon MRP etc).

      Google economist Geoff Bertram’s presentation on “Electricity prices, asset values, and regulation”

    3. By david on Apr 23, 2013 | Reply

      Better for them to get all their “left wing” fear mongering done now, rather than closer to the election. By then it will be old news.

    4. By Bruce Polkinghorne on Apr 24, 2013 | Reply

      Some reading for anyone interested in the above article is The 19/04/13 Guardian weekly page 17.
      “Big six energy firms accused of cold blooded profiteering”

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