Hon Gerry Brownlee
Minister of Energy and Resources

21 May 2009
Media Statement

Report raises serious and legitimate concerns

Energy and Resources Minister, Gerry Brownlee, says he’s very concerned by the findings in the Commerce Commission investigation into the New Zealand electricity market.

The Commission’s report has concluded that the four main generators (Contact, Meridian, Genesis, and Mighty River Power) have a substantial degree of market power in the wholesale electricity market.

The Commission’s analysis, based on work by Stanford University Professor Frank Wolak, suggests that over six and a half years the generators have used that market power to earn $4.3 billion more than what should have been the case.

The Commission says that the most likely explanation of increasing retail prices is the effect of increased wholesale prices.

“These findings are disturbing”, said Gerry Brownlee. “They confirm the opinion of many that they have paid too much for their power bills over the last few years”, he said.

“I acknowledge that Professor Wolak’s methodology will be criticised by the generators and by others as being inappropriate for the New Zealand electricity market.

“However, there is little doubt in my mind that the Commerce Commission is correct in assessing that, at the very least, there are serious systemic issues arising out of the current market structure, market design and market rules that provide the generators with the ability and incentive to exercise market power at various times”, said Mr Brownlee.

“That is why I have a Ministerial Review of the electricity market. The Review team, which is assisted by a technical advisory team of six experts, will closely examine the Commission’s report and use it as a basis for recommendations to improve the market”, said Mr Brownlee.
“I’ve signalled for a long time now that the government is very concerned at the ever increasing price of electricity.

Retail electricity prices have risen by 72% over the last nine years.

“Earlier in the year I said that the Government would not hesitate to act if the Commerce Commission report finds significant shortcomings in the operation of the market, and I stand by that comment”, said Mr Brownlee.

“It’s too early to say what exact changes will result from the Ministerial Review. Professor’s Wolak report provides empirical data only. Recommendations for improvements will be made by the Ministerial Review team after considered and measured study of the report”, he said.

“I am pleased that the Ministerial Review is already up and running so they can get on with the job”, he said.

ENDS

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