Our 2011 election manifesto - Labour Party

After many attempts to improve competition in these markets, many consumers and industry
participants believe that in the absence of adequate competition consumers have and are
being overcharged.
The recent submission to the Electricity Authority by the Waitaki Power Trust provides a
good description of the evidence. 28 In addition to questions about overall prices, the gap
between residential and industrial tariffs is inexplicably large.
Earlier, under Labour, the Commerce Commission conducted an inquiry, appointing
Professor Frank Wolak, a world leading expert to investigate the New Zealand market.
Sadly the result of that inquiry wasn‟t finalised and released until May 2009, after Labour left
office.
The findings were alarming. Prof Wolak found that over the period under review the four
main generators – Contact, Genesis, Meridian and Mighty River Power –exercised their
substantial market power to earn market rents estimated to be $4.3 billion. This averaged 18
per cent of the total wholesale market revenues received by all generators over the entire
period.
The report also found that the excess profits which resulted from the exercise of market
power were passed through entirely in the form of higher retail prices. Since then, prices
have increased further.
Another measure of the ineffectiveness of the market is the failure of our hedge market.
Even after recent attempts by the Electricity Authority to reform this it remains a mere
fraction of the size targeted.
The sale of parts of the electricity SOEs will drive prices even higher. Our experience in New
Zealand has clearly shown that sale of publicly owned infrastructure assets reinforces the
incentive to maximise price, rather than tempers it. The willingness to invest in additional
capacity is reduced, in part because tighter supply margins put upward pressure on prices
and improve profitability.
This should surprise no-one and will no doubt occur if shares in the SOE companies are
sold. It is undeniable that the business motive to maximise shareholder returns is reinforced
and political accountability for power prices is reduced.
Market participants should be on notice that Labour believes there is ample evidence
to conclude that there is insufficient competition in the retail and wholesale electricity
markets. We are not convinced that the recent changes to market rules will cure the
28 http://www.med.govt.nz/upload/70156/Electricity-Market-Review-Submission-127-Waitaki-Power-
Trust.PDF.
190