High spot prices, legitimate or profiteering?

Molly Melhuish, energy analyst

High spot prices, legitimate or profiteering?

The Electricity Authority has deferred its report on whether the December high spot prices were legitimate, or profiteering by generators at the expense of consumers. Its answer will indicate whether the Authority will side with consumers, or generators, or whether it will be a truly neutral regulator.

Government says wholesale prices should be high enough to make new power stations profitable. Otherwise, they say, New Zealand may not be able to meet growing demand.

The claim “may not be able to meet growing demand” is false. Some generators are already investing overseas in subsidised solar, wind and geothermal electricity. This means our electricity dollars are being spent to protect Australian, US and Chilean economies from rising carbon emissions prices – while generation shortages keep New Zealand prices high.

There is a simple test to identify profiteering: whether generators can “choose their level of profits by giving less and charging more.”

The Authority’s job is to apply that test to the December spot prices. Failing that test indicates abuse of market power, also called price gouging.

Spot prices are only part of the profiteering equation. A majority of wholesale electricity is sold by contract, not on spot, and contract prices may also be rising.

Subsequent to the report on December spot prices, the Authority needs to look at the wider issue of whether all wholesale prices are allowing companies to choose their level of profits, to be as high as the Minister will tolerate, by “giving less and charging more”

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