Power to the people


Some of my best friends are socialists. One friend in particular often has good arguments in favour of government interventions in a variety of flavours. Here’s one of them, in response to this article in the NZ Herald on rising power prices.

Its no surprise that electricity prices in NZ have doubled in real terms (compared with overseas) in the last 30 years (as per the article in your link).

Interesting to look at the wage bill, interest bill and profit (and where the profit went) for the old system and compare with the new.

And also look at the nature of the generation and distribution assets , old and new i.e. how much of todays electricity as supplied by dams and plants that were there 30 years ago.

I have no doubt the the old government owned system was:-

More reliable

Also with the old system
little marketing and advertising  costs
reduced management costs
greatly benefitted from orders of magnitude
reduced compliance costs (annual reports. legal costs etc)
profits went to the government to offset taxes
Central planning was done to benefit NZ – not to manipulate the system to the benefit of those receiving bonuses (smartest people in the room syndrome)

Cutting the system up into competing entities means that in many cases where there used to be one job there are now about 6. Plus each of the new entities now has its own marketing department. I project managed the multi-million dollar computer that is required to calculate the billing between generators and retailers.  Such complexity was unnecessary in the old system. And someone has to pay for all those people treading the streets trying to persuade households to switch from one retailer to another.

In the old system the best brains were used on engineering calculations – now they are used on how best to manipulate for profit.

It all wouldn’t be quite so bad if households could buy electricity at wholesale rates plus a margin and use smart meters to understand and adapt to the risks – but that particular vision still seems unreachable.

Anyway that’s my (admittedly one sided) rant.

My friend also admits it “was written very very quickly as an angry outburst. No real thought gone into it. It is filled with sentences and phrases that could be much better as well holes in the logic etc. and totally lacking in references or hard facts.”

Way too modest!

I think it deserves a response. Any takers?

3 thoughts on “Power to the people”

  1. I’ll offer a few words in reply.

    The higher cost of the present system demonstrates only one thing: that a public-private partnership (i.e. fascist) model can be and has been less economical than a socialist one. It demonstrates nothing about the inefficiency of genuine competition.

    The national power grid remains state owned, with local power grids operating as privately owned but state regulated and protected monopolies. Investments in new transmission is regulated by the Commerce Commission, market operation is managed by service providers under agreements with the Electricity Authority (NZ) (formerly the Electricity Commission), and the physical operation of the market is managed by Transpower in its role as System Operator.

    Does your friend call that ‘free market’?

    As for some supporting facts, the 2009 Ministerial Review of the components of residential electricity cost determined prices were made up as follows:

    Energy – the cost of generating electricity: 36%
    Distribution – the cost from lines companies for transporting electricity over local networks between the national grid and your home: 29%
    Retail services – charges relating to providing a high standard of service to customers, including Electricity Authority levies – and margin: 14%
    Transmission – the costs from Transpower, for transporting electricity over the national grid between power stations and local networks: 8%
    Metering – the cost of providing, maintaining and reading electricity meters: 2%
    GST – 11%

    Retail related costs account for only 14% of the total cost of electricity, while state owned enterprises generate 70% of all of the country’s power and 100% of transmission, and the state extracts 11% in GST from the consumer. Distribution companies all have state-regulated monopolies in their respective areas, so that is hardly ‘competition’. It is clearly nonsense therefore for your friend or the NZ Herald to implicate the ‘competitive’ or market-related component of the industry as the culprit for the doubling of electricity prices in real terms in the last 30 years.

  2. A very good reply by Terry – I agree with all that he says.

    The electricity market is long overdue for a really good free-market shakeup. What would be *great* to see would be better ways to generate electricity *at home*. ( PV panels and tiny wind-turbines don’t hack it, IMO.) That would give the electricity sector the kick in the backside that it needs.

  3. Thanks very much for that, Terry. I must outsource my blog posts more often! 😉

    Agreed, Thor. I think electricity generation at home is coming. Maybe not thorium reactors just yet, though.

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