Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Power report ducks question of fair prices, Bertram says

Power report ducks question of fair prices, Bertram says

By Pattrick Smellie

Feb. 11 (BusinessDesk) – Taking electricity company asset values back to 1999 levels, as proposed by the Labour and Green parties, would allow consumers to be charged “fair” prices for electricity, says industry reform critic and Victoria University academic Geoff Bertram.

Responding to a report authored by the Sapere economic consultancy for Business New Zealand, which argues the retail electricity market has become competitive and that Labour and Green party policies could push power prices higher, Bertram says “the authors have simply ducked the question of what is a fair electricity price.”

“Regulators in countries such as the US and the UK set prices after asking ‘what is a fair return on the capital generators have actually invested?’” said Bertram. “The Sapere report does not go there.”

Instead, it argued that “today’s inflated values” for electricity assets should be confirmed, which then allowed Sapere to argue that prices would be higher than lower than under the Labour-Greens proposals.

“Labour and the Greens propose to bring asset values, and so prices, back down to historic cost in order to reverse the huge wealth transfers from consumers to the companies over the past decade,” said Bertram. “They plan to take the valuations of generating assets back down to where they ought to have stayed after the 1999 privatisations (of formerly state-owned Contact Energy), and in the process bring down prices for residential customers.”

The Sapere report cites the actual development costs of some of New Zealand’s largest hydro projects, including the Clyde and Tongariro projects, to argue that “measured in today’s dollars, the historic cost of much of the hydro generation plant exceeds current values and hence a far return would not reduce prices.”

“Over the life of these assets, valuations have been made at various dates which may be lower than the historic cost of current values (such as when assets were transferred from a government department to a state-owned enterprise).

“Selecting and imposing one of these valuations on the current owners of the assets is not supported by economic arguments and would be likely be viewed as capricious by investors in long-life assets.

“It is for these reasons that the experience to date in New Zealand and elsewhere in the world is for governments to adopt the most recent valuations as historic cost values when regulation a move from current valuations methods to historic cost methods.”

The report argues the Labour-Greens central buyer policy for wholesale electricity is not properly targeted at retail competition, could lead to higher prices if true historic costs are used, and appears to imply a 40 percent drop in current wholesale electricity prices to achieve power cost cuts to households of around $300 a year.

Moving to a central buyer would also discourage smaller, new entrants to electricity retailing in favour of very large retailers seeking economies of scale, which would stifle innovation.

“This is perhaps why no country has managed to implement retail competition under a single-buyer wholesale model,” said the Sapere authors, Kieran Murray and Toby Stevenson, who were involved in the implementation of reforms in 2010 that are credited with improving the competitiveness of the retail electricity market.

The report says electricity price rises have not been well explained, transparency of pricing is inadequate, and that government interventions akin to the Accommodation Supplement may be justified to deal with the fact that energy poverty is on the rise.

Simply lowering prices would not necessarily solve energy poverty, since for many people, the issue was the quality of their housing and inability to afford energy efficiency investments.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Insurers Up For More Payouts: Chch Property Investor Wins Policy Appeal In Supreme Court

Ridgecrest NZ, a property investor, has won an appeal in the Supreme Court over insurance cover provided by IAG New Zealand for a Christchurch building damaged in four successive earthquakes. More>>

ALSO:

Other Cases:

Royal Society: Review Finds Community Water Fluoridation Safe And Effective

A review of the scientific evidence for and against the efficacy and safety of fluoridation of public water supplies has found that the levels of fluoridation used in New Zealand create no health risks and provide protection against tooth decay. More>>

ALSO:

Scoop Business: Croxley Calls Time On NZ Production In Face Of Cheap Imports

Croxley Stationery, whose stationery brands include Olympic, Warwick and Collins, plans to cease manufacturing in New Zealand because it has struggled to compete with lower-cost imports in a market where the printed word is giving way to electronic communications. More>>

ALSO:

Prefu Roundup: Forecasts Revised, Surplus Intact

The National government heads into the election with its Budget surplus target broadly intact, delivering a set of economic and fiscal forecasts marginally revised from May to reflect weaker commodity prices and a lower tax take. More>>

ALSO:

Convention Centre: Major New SkyCity Hotel And Laneway For Auckland

Today SKYCITY Entertainment Group Limited revealed plans to build a new hotel and pedestrian laneway of bars, restaurants and boutique shopping on land it owns in the Nelson and Hobson Streets block, expanding the SKYCITY Entertainment Precinct. More>>

ALSO:

Igniting The Spark: Bringing The Digital Enabler To Life

Changing a name is, relatively speaking, the easy part of a re-invention. Changing a culture, getting all the ducks in a row, turning yourself inside-out to become customer-inspired is a much bigger challenge. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news