20 Apr 2013

Electricity market successful, says minister

9:02 am on 20 April 2013

Energy Minister Simon Bridges says the Labour and Green parties' plan to establish a single electricity buyer would be a remarkable move in what is a mature and competitive market.

The Labour and Green parties say they would set up a Crown entity called New Zealand Power that would buy electricity from generators at a set price and then pass the savings on to consumers.

The parties say the Government's approach isn't working, and setting up a single purchaser of electricity will cut household power bills.

Mr Bridges told Radio New Zealand's Morning Report programme that in the present system, with 15 independent electricity retailers, more than 700,000 people have switched from the most expensive to the least expensive supplier.

He said the market in New Zealand is already one of the most competitive markets in the world and to try to interfere with what is an increasingly winning story is "just remarkable."

Mr Bridges has criticised the parties' announcement just days after shares in state-owned electricity company Mighty River Power went on sale, saying it smacks of policy on the hoof to try and scupper the sale.

Labour leader David Shearer rejects that criticism and says the party is being clear about its intentions.

'Terrible economics'

The Institute of Economic Research says the policy is absurd because bureaucrats would not have the right knowledge to accurately set a fair power price for the whole country.

Chief executive Jean-Pierre de Raad says electricity companies would artificially increase their costs in order to drive up the price.

"It's just terrible economics," he said. "The ability to suppress prices is illusionary ...eventually we'll end up paying more for our power.

"And also, where do you stop? So we see food prices rise - should we have a central buyer for food?"

Consumer New Zealand says change is needed because power prices have risen much faster than inflation for more than a decade, and as long as the proposed regulator is vigilant it will be able to prevent companies gaming the system.

Regulation found wanting in US - academic

A US academic who has studied New Zealand's electricity system says Labour's plan for cutting power prices is flawed.

Stanford University economics professor Frank Wolak wrote a report in 2009 that found New Zealand's electricity companies used their market power to push up prices.

But he told Radio New Zealand's Nine to Noon programme on Friday that having a single buyer of electricity is no more effective in controlling prices than having several.

Professor Wolak says high-level regulation stipulating the price of electricity was tried in the United States and found wanting.

He says the cards are stacked against regulators who always know less about a company they are trying to control than the company itself does.