Why power prices matter

News that the CEO of Contact Energy is now earning $1.7 million a year, or $33,000 a week, has shocked many New Zealanders and reinforces the urgent need for Labour’s NZ Power policy, Labour’s Finance spokesperson David Parker says.
“Currently power companies are allowed to charge excessive prices by pricing all electricity at the price paid for the most expensive electricity produced (often gas fired).
“Under Labour’s NZ Power consumers pay the average, rather than the highest, cost of generation. This saves hundreds of dollars a year for the average household and about 5 per cent for commercial users.
“This is only fair. Sixty per cent of NZ’s electricity comes from hydro, which is the cheapest electricity to produce in the world. It’s fuelled by the energy which comes from our public rivers. At present the public gets little benefit from this.
“I have been challenged by the business community on how I justify Labour’s policy to drop power prices.
“It’s easy.  People are cold. A couple of weeks ago I was in Wanganui. It was a cold day. I dropped into a suburban library. I was told many of the people who come in do so to get warm. They stay for hours on cold days because they cannot afford to heat their homes.

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Grey Power deal shows need for NZ Power

Pulse Energy’s deal with Grey Power for discounts for its members shows why New Zealand needs Labour’s policy to bring down power prices, Labour’s Finance spokesperson David Parker says.

“The agreement between Pulse and Grey Power for low cost power for senior citizens shows the electricity industry recognises that prices are too high for many New Zealanders.

“Some senior citizens are forced to limit their use of appliances such as heaters during winter because power prices are higher than they should be. This is a tragedy which puts their health at risk.
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Wolak comments mischaracterised

Reports in the media have claimed that Professor Wolak, a world-leading expert on electricity markets from Stanford University, recently said that single buyer electricity markets do not work.

“That is not what he said.

“I attended the recent lecture by Professor Wolak at Victoria University’s Institute for the Study of Competition and Regulation.

“While he clearly likes electricity markets, Professor Wolak said of the New Zealand market:

• Under the NZ market, generators are able to maximise prices above the competitive benchmark, particularly when water is short. Professor Wolak’s graph comparing wholesale prices to the energy component of residential retail prices identified a large gap opening up, and increasing through to 2013.

• Generators are exercising unilateral market power and are able to do so without colluding.

• This is similar to what has happened in other hydro-dependent markets including California and Columbia.

• It is hard to achieve adequate competition to hold prices down when the generators are vertically integrated with the retailers.

• When asked whether excessive profits are extracted by gentailers as a consequence, he said that is a political not an economic question.

• When asked whether a single buyer, in place of multiple buyers, operating under the existing long run marginal cost market model would reduce excessive prices, he said it would not.

“Contrary to some of the assertions since his presentation, Professor Wolak confirmed his assessment that New Zealand prices have been substantially higher than the competitive benchmark.

“Some commentators have also asserted that Professor Wolak said the single buyer model does not work. He did not.

“Professor Wolak also stated that his analysis was about competitiveness (or otherwise) of the wholesale LRMC market. He agreed it does not take into account, nor express any view about whether it is fair that privately owned generators using older hydro assets should be able to keep the extra returns they make from the public water resource when those returns increase under the long-run-marginal-cost model. He again said that is a political question and he doesn’t get involved in political questions.

“Labour’s single buyer model does not replicate the existing long run marginal cost model, but rather proposes a single buyer paying operating costs plus a return on capital to each generator, and averages that into the retail market. Our proposal also structurally separates generators from retailers, which is a patently necessary step,” David Parker said.


Phil O’Reilly open letter wrong on many counts

It will comes as no surprise that Labour disagrees with the open letter from Phil O’Reilly and others, says Labour’s Finance spokesperson David Parker.

“Labour is absolutely committed to lower power bills for New Zealand households and businesses. NZ Power will reduce bills by $230 – $330 a year for families and commercial bills by 5 – 7 per cent.

“The letter from Mr O’Reilly does not cure the current problems in the uncompetitive electricity market. Prices have increased since the independent report from Professor Wolack found $4.3 billion of overcharging. The system must be fixed.

“Currently super-profits are made on the back of our public resource – free water. This must be addressed if power bills are to be lowered. Mr O’Reilly again offers no effective solution.

“There are several other mistakes in the letter. There are no subsidies involved. It is remedying overcharging and will increase retail competition, and enable new entrants into generation.

“The current policy settings have failed. NZ Power remedies those failures. Contrary to Mr O’Reilly’s claims this is not a regressive step into the past.

“The letter repeats the National Government’s scaremongering about investment. The NZX stock exchange is up since the announcement. There is no investor flight or fear. It is irrational and damaging to markets and the New Zealand economy to claim there is.

“Rather than having a negative impact on business and jobs, independent economists Berl has found that it will see a $450 million boost to the economy and create 5,000 jobs. Our policy reduces costs to households and businesses. That’s good for the economy.

“The letter appears to want households not to use more electricity. Many of our children are growing up in cold, damp homes and our elderly often cannot afford to switch on the heater. It seems somewhat callous to suggest higher power bills are good as poorer New Zealanders use less electricity rather than adequately heat their homes.

“Phil O’Reilly’s criticisms of this policy are incorrect. Mr O’Reilly has made no effort to contact Labour to discuss this policy. If he had some of his errors would have been avoided,” says David Parker.

Supportive commentary about NZ Power

New Zealand Manufacturers and Exporters Association

New Zealand Grey Power Federation

Geoff Bertram, from the Institute for Governance and Policy Studies at Victoria University

Power industry consultant, Bryan Leyland

Consumer New Zealand chief executive Sue Chetwin

NZ Council of Trade Unions

Generation Zero

Child Poverty Action Group

2nd May 2013 Media Statement

Nats’ ETS claims on power misleading again

John Key is wrong yet again with his claims that Labour’s power policy will see a rise in power bills due to the emissions trading scheme – the truth is in future the ETS will have less of an impact on power bills than it does now, says Labour’s Finance spokesperson David Parker.

“Under Labour’s power plan, all Kiwis will see their power bills reduced by $230 – $330 a year. Under National they will go up. National knows that matters to New Zealanders and is desperate to undermine the policy with a series of misrepresentations.

“Under Labour’s proposed changes generators will be paid for their actual costs. The ETS will only apply to electricity production that actually generates carbon, when 75 per cent of production is low carbon. Currently the carbon price impacts on other electricity generation.
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Government out of touch on power prices

Energy Minister Simon Bridges is out of touch if he believes Kiwis are getting a fair deal from electricity providers, Labour’s Finance spokesperson David Parker says.
“Asked in a radio interview whether New Zealand households were paying too much for their power Mr Bridges answered: ‘No’.
“Labour has proposed a solution which will work.
“It will see electricity fairly priced and will save the average household consumer between $230 and $330 a year on their power bill.
“National’s reaction, typically, is over the top. It has mentioned North Korea, Albania, communism, socialism, blackouts, even Polish shipyards.
“None of that is true.
“Steven Joyce’s latest allegation is that carbon pricing through the ETS would put power prices up more.
“That is incorrect, too. In fact ETS costs to consumers are lower because the carbon price under the new model will not flow through to hydro electricity prices (currently it does).
What is clear, is that under National power prices will continue to go up.
“Labour’s plan will not only reduce power bills, it will also grow the economy and create jobs.”

Nats: No idea how to lower Kiwis’ power bills

National’s hysterical reaction to Labour’s plan to lower Kiwis’ power bills by $230 – $330 a year shows that National has no comeback, says Labour’s Finance spokesperson David Parker.

“National is hurling all sorts of inaccurate insults at the NZ Power policy and muddying the waters. Their scaremongering shows they’re worried that hard-working New Zealanders who are sick of paying through the nose for electricity will embrace our new policy.

“Labour’s policy is quite clear. It will reduce power prices through two means.
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