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Bollard’s observation right on the money

Thursday, 11th December 2008

Media release by the Major Electricity Users’ Group (MEUG)

Bollard’s observation there is weak competition in the power sector is right on the money

“The statement yesterday by the Reserve Bank Governor Dr Alan Bollard that, ‘We would hope that the electricity industry does not take advantage of its market position and keep increasing rates’ is right on the money,” said Ralph Matthes, Executive Director of the Major Electricity Users’ Group.

He was commenting on a media release and speech by Dr Bollard yesterday tilted “Everyone needs to play their part: Inflation and recession in the New Zealand economy.”

“Bollard singled out electricity prices and local authority rates as areas of the economy where there have been ‘sizeable price increases in areas not directly exposed to a high degree of competition.’ This isn’t a new concern to the Bank. In both the 23rd October 2008 and 4th December 2008 statements on the Official Cash Rate the Reserve Bank Governor said “However, we still have concerns that domestically generated inflation (particularly local body rates and electricity prices) is remaining stubbornly high.”

“In a very unusual move the Reserve Bank also made a submission to the Electricity Commission on “big picture issues” for the electricity sector on 11th November commenting on the inflationary impact of recent increases in power prices . In the same big picture issues consultation round the Commerce Commission also set an unusual precedent by making a submission. The Commerce Commission listed “the pricing of energy” as one of three key issues the Electricity Commission needed to focus on.

“There is no silver bullet in finding ways to improve competition in the electricity market. However it is essential that the ability of suppliers to increase prices at will is curtailed. There has been some progress in improving information flows to allow parties to better manage risks and make choices including industry led initiatives and regulatory interventions .

But the fact remains as Dr Bollard quite correctly points out, the electricity market continues to be one of the least competitive sectors of the economy.
“It needs a real commitment by policy makers, regulators and electricity suppliers themselves to acknowledge the problem and apply resources to finding solutions” concluded Mr Matthes.


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