Govt. control costs consumers

August 21, 2013

The Opposition is touring the country peddling its power policy.

Dr Muriel Newman points out is has already cost us millions of dollars in sabotaging the Mighty river Power Float:

Just days before the listing, Labour and the Greens announced their intention to regulate the wholesale pricing of the electricity industry should they become the government in 2014. This announcement created such a shockwave that the sale of Mighty River Power had to be suspended to allow investors time to back out of the deal. As a result many tens of thousands of investors who had expressed an interest in investing did not do so and many tens of millions of dollars were wiped off the value of the government’s shareholding. Within two days of the Labour-Green announcement, the share market value of Contact Energy, Trust Power and Infratil had fallen by almost $600 million.  

It is fair to say that as a result of the greed of the Maori Council and the political uncertainty created by Labour and the Greens, New Zealanders lost out. The proceeds of the Mighty River sale were less than expected, so less investment money is available for spending on hospitals and schools than would have been the case if Labour, in particular, had not played politics.

The point is that people have come to expect the Greens to demonstrate their deep socialist roots and extremism when it comes to policy-making. In spite of their clever portrayal of financial credibility, even a cursory examination of their policy proposals reveal how ideologically driven and deeply flawed they actually are.

However, the markets expect Labour to produce a rational policy platform – one designed to take the country forward, not backwards into the dark ages. Yet, if their plan to re-nationalise pricing in the electricity industry ever became the law, industry experts warn that the power cuts of bygone years, would again become part of our future. . .

The architect of National’s electricity reforms, Max Bradford, compares power policies of different political parties:

The Labour and Green parties have announced a policy to effectively nationalize privately and publicly owned companies by controlling their prices and their profits. NZ First proposes to reacquire the generation companies and create one large state-owned generator like the NZ Electricity Department (NZED) once was. They believe they can force down electricity prices, while at the same time guaranteeing security of electricity supply and encourage investment in electricity generation and distribution.

National, on the other hand, believes that the electricity sector works best within a competitive market, with a mix of private and public ownership, and regulation where there is no competition in those parts of the sector where there can be no competition i.e. the local lines companies and Transpower. This is the best way to get the lowest electricity prices consistent with guaranteeing security of supply and sector investment to meet increasing demand.

These are dramatically different approaches.

Furthermore, it seems that the National Government will proceed to partially privatize Meridian Energy now that the uncertainty over the Tiwai smelter’s future has been delayed for a few years. This follows the successful partial float of Mighty River Power.

National’s approach is followed by the rest of the world and gets security of electricity supply and the lowest power prices possible consistent with a long-term viable sector.

It is my view too, not from any ideological perspective, but simply from what achieves the best practical result for consumers: New Zealand’s energy history and experience in world energy markets shows that government owned or controlled energy companies cost consumers – or taxpayers where subsidies are paid – far more than an efficient competitive energy sector, with well designed regulation where it is necessary to make the markets work. . . .

The opposition’s policies are a prescription for price rises, insecure supply, and power cuts.

. . . Some people in New Zealand believe that the electricity sector cannot be competitive, and prices will always be higher than in a state owned, politically determined industry. This belief is in spite of the fact that every other sector of the economy once owned by the government (e.g. telecommunications and airlines) is now operating in competitive markets, giving consumers choice and lower prices.

How many people would want the government to monopolize air travel or telecommunications again? Competition has produced palpable benefits for consumers, and has generated tax revenue for the government, whereas in the past taxpayers had been subsidizing these sectors. . .

The Bradford reforms were criticised from all sides but  when competition was introduced in 1998-99, real electricity prices fell on average for four years. That hadn’t happened in the preceding 20-30 years of state ownership and control.

. . . Prices fell more for some consumers than others: the commercial sector, and farming had been subsidizing households for years as prices were politically determined, with the result that very high non-household power prices helped make business and farming internationally uncompetitive.

Inflation adjusted prices for local lines distribution companies fell substantially for some years after 1999, as the regulator – the Commerce Commission – forced these monopoly companies to seek cost efficiencies and only allowed a reduced rate of return on capital because of the lower commercial risks they faced compared to competitive companies.

In 2002, the then Labour government began to re-regulate the market in a series of policy moves, although they didn’t move to change the structure of the market finally established in 1998 after a decade of reform.

The overall effect of these moves was to reduce the competitive pressures on the generators. Government policies reduced the ability of companies to build low cost thermal generation (such as low emission coal fired stations). There were other pressures as well that no government could avoid e.g. the ending of low cost gas supplies from the Maui gas-field, and the addition of increasingly expensive new generation capacity as lower cost alternatives were not available (such as wind power).

The result was a 72 percent increase in inflation adjusted power prices between 2002 and 2008. This had nothing to do with the structure of the market, but was principally the result of Labour’s policy mix where the market could not find the lowest cost generation capacity and the downward pressure on electricity prices of the 1998-99 reforms was eliminated by government policy.

During this time, the government also sought higher dividends from the state owned power companies, which in turn put upward pressure on prices.

After its election in 2008, National reinstated the policy pressures on competitive producers and retailers. Consumers were encouraged to shop around for alternative electricity suppliers, just as they do for air travel, mobile phones, or petrol, with initiatives like Powershop, the What’s My Number campaign and greater transparency of pricing.

As a result, power prices have risen at a far slower rate than in the 7 years prior to 2008. Whether they can or will fall further on a sustainable basis, depends on the policies being followed by the government of the day, and perhaps more importantly on the cost of each new increment of electricity generation capacity as New Zealand has run out of “cheap” renewable energy such as hydro. . .

He has suggestions for further improvements which would make the market work better, and put pressure on the industry to deliver the lowest possible prices to consumers.

I would include the following:

  • Mandating smart meters into all electricity consumers’ premises
  • Consider removing metering from the generators and putting them in the hands of independent meter operators or lines companies
  • Improve the ability of independent retailers of electricity to provide electricity to household consumers, by removing any barriers to their ability to buy power from generators, independent retailers or the wholesale market
  • Providing a power tariff for household consumers to buy power through the wholesale market (to get the benefit of low prices when the wholesale market is over-supplied)
  • Make it easier for individuals to generate their own power and supply into the grid, with a certain, if necessary mandated, tariff payable by lines or generation companies

He identifies serious shortcomings used by the Labour and Green parties to justify their policy and concludes:

As a country we have clearly reached a fork in the road: do we continue to promote competitive measures to force competitive generators to look for lower cost solutions, together with sensible regulation on monopoly parts of the electricity sector; or do we return to the post-war model of monopoly state ownership and control, where political parties determine prices and profits?

We’ve got a choice.

There’s the LabourGreen policy which puts power in the hands of politicians and bureaucrats or National’s policy which puts the power in the hands of consumers.


Time to cut the lines?

June 24, 2013

The Waitaki Electric Power Board used to boast of getting electricity to the most isolated dwellings in the furthermost corners of its catchment.

I doubt the board boasted about the cost of doing that and in those days service usually overcame commercial imperatives.

When Max Bradford’s power reforms were introduced the new lines companies were required to keep servicing the far-flung consumers.

I think there was a review of that a couple of years ago and the decision was made to keep things as they were.

It is possible that this might not always be best.

Lines charges make up a big proportion in most people’s power bills. The cost can be out of proportion to how much or how little power they use and how expensive it is to maintain the lines and repair them after storms like last week’s.

Given technological advances, is it still necessary to deliver power to everyone?

Westpac and Meridian Energy launched a new solar panel initiative for farmers at the National Fieldays.

One of the first to pilot the solar panels will be the Westpac Taranaki Agricultural Research Station in Hawera, which will provide an ongoing assessment and monitoring of the solar panels’ operation and cost savings on their dairy farm. . .

According to the Energy Efficiency and Conservation Authority (EECA), around 140,000kWh of solar energy falls on the roof of a typical farm shed each year. Many sheds consume more than this in electrical energy.

While the savings from solar are modest in comparision to a farmer’s overall energy bill, there are savings to be had and potentially the opportunity to make money by selling any unused energy back into the grid at non-peak times. . .

Anders Crofoot, Federated Farmers Energy spokesperson, uses solar power at Castle Point Station and says it’s an effective technology for supplying power to remote areas in a cost effective manner.

“At Castlepoint Station we use solar to power radio communications and wireless broadband over 3,700 hectares.

“With my Federated Farmers hat on, I can see dairy farmers looking to use the roof expanse of their milking sheds for solar panels. The same applies to other heavy energy users such as arable farms and large sheep and beef stations like Castlepoint.

“If a farm’s electricity bill is over $1,000 each month then the Solar Shed initiative may suit your business. . . “

The Solar Shed initiative is for people who are still tied to the grid. That enables them to get power when they can’t generate enough themselves and gives them the opportunity to sell any excess back to a power company.

If reducing lines charges is one of the aims, some properties will have to be off the grid and Castle Point has a house which is.

It uses solar power and gas. Small scale wind or hydro schemes might work in some areas and diesel generation might also be viable.

Friends built a house in the country which is off the grid. They spent a lot of time designing it to make the best use of natural light and heat, have very good insulation and use wood burners, solar panels and diesel.

I realise this is potentially dangerous territory. Talking about cutting the lines to the peripheries, invites  debate on the cost to many versus the benefit to a few.

But as lines charges increase and technology improves, it could be worth investigating whether there are better, cheaper and possibly more reliable ways of getting power in remote places than through power lines.


Power prices

April 21, 2013

I was the National Party’s electorate chair when Max Bradford introduced the power reforms.

It wasn’t an easy time to be a volunteer in the party – people inside and outside opposed the changes.

More than a decade later many still regard them as a mistake and blame them for steep increases in the price of power.

But as this graph from Kiwiblog shows, that is wrong.

Electricity-Prices-1982-2012

Labour are saying that it was the Bradford reforms that led to increased prices. in fact the four years after the reforms saw the smallest increases in 25 years.

Also worth noting that of the increases in the last four years, two of them were due to external factors – the GST increase (which had compensating tax cuts) and the introduction of the Emissions Trading Scheme.

A variety of factors impact on the price of power.

The most obvious one this graph shows is Labour governments and the LabourGreen plan to nationalise wholesale power could well make that worse.


LabourGreen power plan will increase prices

April 19, 2013

The LabourGreen plan to power us back to the socialist seventies will increase the price of power – and at least one of their MPs knows it.

Electricity consumers should be under no illusion that the Labour-Greens power plan will hit them in the pocket, says Energy and Resources Minister Simon Bridges.

“Harking back to the 1970s with a half-baked nationalisation plan will ultimately cost consumers as it returns the country to the days of supply constraints, power blackouts and ultimately higher prices.

“David Parker himself said this in advice to the Cabinet in 2006.

“As Minister of Energy he said that “a single buyer would likely result in higher capital and operating costs”. He went on to say that: “The risks involved in changing arrangements could be significant. The resulting uncertainty could lead to investment proposals being put on hold. Direct implementation costs could be large.” And, he admitted that “The single buyer would be relatively poor at sustaining pressure on operational costs.

“Competition is by far the best tool for delivering electricity at competitive prices,” says Mr Bridges.

“Our 2010 reforms mean that there is more competition amongst generators and retailers than under Labour. We are seeing more innovation and efficiency with 800,000 smart meters operating in New Zealand homes without any need for state intervention.

“Kiwi consumers have the power in their own hands. They are switching in their thousands for a better deal from suppliers and saving hundreds of dollars a year in the process.

“The Labour-Greens policies will actually result in higher prices over time because we’ve seen before that politicians and central bureaucracies do a bad job of setting prices and ensuring supply. Anyone who remembers the power blackouts of the past will know this.

“So does David Parker.”

The Cabinet papers are here.

Parker said publicly on more than one occasion that he stood for Labour because of Max Bradford’s power reforms.

He also said publicly that Labour hadn’t made any major changes to them because it couldn’t.

The Cabinet Papers back that up and show the LabourGreen plan won’t work.

 


Labour’s desperate attempt at sabotage

April 15, 2013

Labour is making a last-ditch desperate attempt to sabotage the partial sale of Mighty River Power.

Shares in Mighty River Power go on sale today, but Labour is warning potential investors it plans to makes changes in the electricity sector if elected next year. . .

He won’t say what the changes will be, only that is was fair to warn potential investors.

“What we’re most concerned about is the rise in power prices and the fact that when these assets are sold the likelihood is that power prices are going to go up and that the companies are going to be increasingly held in foreign hands.” . .

The Labour leader is playing at being David Shearerpisos again.

There are no details on what they’d do because there is nothing they could do. If he’d asked his Finance Spokesman, David Parker, he’d know that.

Power prices went up far more steeply in the nine year’s when Labour was last in government than they have since National took over in 2008.

At a public meeting, when he was a Minister, Parker was asked about power prices and said he’d joined Labour because of Max Bradford’s electricity reforms.

In response to a question about why Labour had done nothing to reverse the changes or moderate them he said it was too late, there was nothing the government could do.

Shearer’s latest release is empty rhetoric. It displays the party’s contempt for, and ignorance of ,business and provides another reason to ensure they won’t be leading the government after next year’s election.


Bradford vindicated?

October 26, 2012

The opposition to power reforms of the 1990s and their architect Max Bradford were a significant contributing factor to the loss of the seat of Otago for National’s Gavan Herlihy.

David Parker, who won the seat, told a pre-election meeting in 2002 that they were one of the factors which motivated him to stand for Labour.

But were they really so bad?

Kiwiblog has a graphic, originally from the ODT, which shows they did work as intended:

Add this story to Scoopit!.

Regulation and re-regulation aren’t the only factors which affected prices.

The reliance on hydro generation puts pressure on supply and therefore price if there is a drought which reduces the water flow into the lakes behind dams.

But prices went down when retail competition was introduced and went up again when Labour re-regulated the electricity market.

 


Bradford to Peters: do right thing

September 10, 2008

The Hive  has posted a copy of an email from former cabinet minister Max Bradford to Winston Peters:

From: Hon. Max Bradford
Sent: Wednesday, 10 September 2008 11:30 a.m.

To:
winston.peters@parliament.govt.nz
Subject: Doing the Right Thing at a Late Stage
Winston

I appreciate the extraordinary pressure you must be under at the present time. It appears the Prime Minister is about to use the axe on you, if the kites being flown by the 9th floor at the media are any guide.

Can I make a suggestion to you?

I am sure the country would think far better of you if you were to withdraw NZ First’s support for the Emissions Trading legislation at the Third Reading stage. It is a terrible piece of proposed law with far reaching impacts on New Zealanders, and in particular on your support base, the elderly.

It isn’t that NZ doesn’t need a well thought-out policy on climate change. But the Bill before Parliament, which your Party is currently supporting, isn’t it.

For Labour to expect that the legislation will work for ordinary Kiwis when they have to introduce 785 amendments at the Committee stages of the bill, after hundreds following the Select Committee examination, is mind boggling proof that the government is going to get it wrong. It’ll be ordinary people who suffer, not the Labour ministers and their supporters who’ll have departed the scene by then.

So I urge you, even at this late stage, to withdraw support for the Bill . Let Parliament have a more rational and considered look at the best policy for NZ in the early stages of the next Parliament – perhaps you’ll be part of that process too.

If you do so, the public will think better of you when – or should I say if – Helen Clark wields the axe in the next few days.

Her action will then look like a vindictive response to your principled withdrawal of support for legislation that is inimical to everybody’s interests in this country.

Regards
Max

Hon. Max Bradford
Director
Bradford & Associates Ltd
Level 8, 90 The Terrace
P O Box 8040
Wellington 6145
NEW ZEALAND

I think Bradford used to flat with Peters. Regardless of twhether I’m right about that, they were certainly National Party colleagues and I’d like to think this plea to do the decent thing might be heeded. But I won’t be holding my breath.


%d bloggers like this: