(How's that for an opening statement you're already agreeing with?)
A lot of our electricity is produced by old, bought and paid for, hydro stations.
Prices have been escalating at 4% over inflation since about 2002 when the market first started to function.
The reforms were bought in by National's dear old Max Bradford who guaranteed that power prices would reduce in 1998 when separate lines and generating companies were formed.
People who started work at the new ECNZ unfortunately did not understand electricity systems. These people gained the upper hand and insisted electricity was "a commodity like any other". Let me assure corporate clowns working for ECNZ, electricity is no such thing.
Take a market commodity, we'll say baked beans, then, if the price goes up, people will switch to a cheaper brand or a new food altogether. Baked beans have essential market characteristics of price elasticity and the availability of a market substitute.
Electricity on the other hand has no alternative and the value is much greater than the price.
The Electricity Authority has calculated the cost of losing a supply of electricity is more than $10/kWh. This would cause an economic collapse.
"Electricity is vital!
When a supply has been switched off, people die.
We have seen this."
Electricity is as vital as water, roads and sewerage treatment, and should be treated as such.
Consumers should be able to buy it at the cost of production plus a small proportion more for future new generation and ensure there is sufficient capacity for drought years.
The Wholesale Electricity Market Development Group (WEMDG) was set up to give NZ a competitive market. In the end they had to choose between two options.
One was a "single buyer" system where each power station would contract to supply electricity at its cost of generation over a period of twenty years or more. With this option most of our electricity would have been bought at a very low price because our hydro stations were old and generating at a very low cost. Should a new station be needed the single buyer would look for the station with the lowest overall cost of electricity. WEMDG would get offers from a genuinely competitive market in the business of building and operating power stations. Consumers would get electricity at the optimised average cost of production.
WEMDG was advised that although a single buyer market was the lowest risk option they chose an option based on selling kWh.
To an experienced engineer, the shortcomings are obvious. For instance the stations all get paid at the price bid in by the highest bidder. When an expensive station is needed the low-cost stations make huge windfall profits. During a shortage the generators have market power can, and do, push up the price. There are many other examples of poor thinking resulting in distorted market results. A perverse outcome to say the least.
It has been calculated that as a result of the flawed market system and the associated reforms, consumers have paid more than $4,000,000,000! Yup you read it right! That's 4 thousand million dollars more for their electricity.
On several occasions generators have been seen manipulating the market but without breaking the rules.
We may conclude the market is seriously flawed and rips us (the consumers) off.
Many rules and regulations governing the market are just plain nuts.
One example. Because the market fails to co-ordinate the power system for the benefit of the consumer, the industry can no longer use ripple-control to switch off water heaters during times of peak demand.
Should the market and regulations be rationalised the price of electricity would drop and the only price rises would be a small increase in the average cost of electricity as a result of putting new generating plant in the system.
What is needed is an objective and independent examination of the market and the regulations.
There are lots of corporate "executives" in the industry, all sucking as hard as they can on the corporate tit so I don't expect they will be the turkeys voting for an early Christmas.
I suppose what this means is:-
We learn from history what we don't learn from history
I wish to thank Bryan Leyland, power industry consultant, and part-owner of a hydropower station that profits whenever the generators manipulate the market!!!