A tale of two responses

June 6th, 2013 at 7:00 am by David Farrar

The Herald reported:

In a 28 page paper delivered to an industry audience in Auckland, Dr argues current arrangements are working well but can be better, and that returning to a central planning approach will lead to higher prices and more likelihood of power shortages.

“Conclusions based on inadequate research are not a basis for sound economic policy,” said Layton, in a direct attack on Victoria University Institute of Policy Studies economist Dr Geoff Bertram, whom he accuses of producing graphs that overstate the extent of household power price increases relative to other countries.

Dr Layton is the Chairman of the Authority, which is the sector equivalent of the Commerce Commission. It is the body that helps regulate the market to try and maximise competition to benefit consumers.

Dr Layton is not a politician or lobbyist. He is not campaigning for votes. His job is to identify what sort of regulatory regime will best deliver for consumers.

Layton also says he would not implement the Labour-Greens’ NZ Power proposal because it would contravene the requirements of the regulator’s legislation “to promote competition in, reliable supply by, and the efficient operation of the electricity industry for the long term benefit of consumers.”

Asked whether he would be able to serve on the Electricity Authority if a Labour-Green government were elected, Layton said: “I personally wouldn’t.”

What he is effectively saying is that their proposal threatens reliable supply. Not surprisingly, he doesn’t want to be the fall guy, should that come to pass.

On central buyer proposals, he said similar policies had been examined four times in the last 25 years and “found wanting in terms of what would be of long term benefit to consumers.

That is not just his view. That was also the view of when he was Minister of Energy.

What is fascinating is the responses from David Parker and to his paper.

David Parker has done a critique of his analysis. I don’t agree with Parker’s critique, but it is policy based and respectful.

Contrast that to Russel Norman’s response:

“Dr Layton’s extraordinary foray into political debate is nothing more than a National Party-appointed civil servant who has failed to do his job and is now trying to protect his patch,” said Dr Norman.

So once again Dr Norman attacks the man, instead of the issue. Rather Muldoonist, dare I say.

It is worth recalling what the annual increase in electricity CPI have been. For the last ten years they have been:

  • 2003 9.3%
  • 2004 8.8%
  • 2005 4.1%
  • 2006 7.1%
  • 2007 6.5%
  • 2008 7.7%

Then since the election

  • 2009 2.1%
  • 2010 5.8% (of which 2.2% was GST increase, so underlying figure was 3.6%)
  • 2011 2.4%
  • 2012 5.2%

The increases in the last four years have been fairly modest. Excluding the GST change, it has been around 3.3% a year which is higher than desirable but much less than the previous Government.

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21 Responses to “A tale of two responses”

  1. coventry (316 comments) says:

    The Greens, the nasty party.

    Russel is using the ‘play the man not the ball’ tactic. Unfortunately it will work untill a ref steps in and sends the moron back to Darwin.

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  2. dishy (225 comments) says:

    Come on then, Winston, you better lower your game still further, if you want to stop Russel carrying off the prize for being NZ’s most obnoxious politician. Ever. At least you yourself can get to hate him for being a foreigner.

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  3. Rosa19 (22 comments) says:

    interesting data … be good to compare these price increases with the price increases of natural gas over the same period, its a substitute and produced in pretty competitive markets …

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  4. dc (173 comments) says:

    It’s interesting to note which parts Parker doesn’t respond to. I thought the breakdown of the comparison between industrial and residential prices (points 94 onwards), which Labour made so much of in their policy document, was very revealing.

    What the [EA] fact sheet shows is that the differential in the end charges to residential and industrial are explainable by GST at 15% being applicable to residential but reclaimable by other groups and differences in costs of retailers to serve, transmission charges, liability for distribution charges, metering costs and EA levies to operate and govern the market. Conclusions based on inadequate research are not a basis for sound economic policy.

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  5. dc (173 comments) says:

    @Rosa according to the EA natural gas prices roughly doubled during this period, and coal and diesel went up a lot as well. These fuels are used a lot during peak periods, which are largely driven by residential demand in NZ.

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  6. SPC (5,472 comments) says:

    I don’t think that many Kiwiblog can credibly take someone to task for resort to personal attacks, and in the case of Norman the Kiwiblog host has lapsed there himself.

    The weakness of the single buyer or fixed price model is in incentive to create new generation capacity – but a W of F for rentals would reduce power demand, and there is the prospect that the Tiwau Point smelter might close.

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  7. Rosa19 (22 comments) says:

    “The basic problem is whether the manager will have at his disposal the requisite knowledge when he does not face competitive rivals who are trying to outbid him for resources. He may sincerely want to produce at minimum cost but he may simply not know what the minimum cost is if he is not involved in a rivalrous, competitive discovery process…To assume that the knowledge of the relative costs of alternative production processes and projects are available is to miss the whole point… “

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  8. flipper (3,754 comments) says:

    Norman is simply doing what all red melons do- ignore the facts, and scream headline-grabbing words.

    Parker is playing the well worn political game of smoke and mirrors. Good try, but no cigar.

    But, David, would you please stop talking BS on RDM? You are simply repeating an age old shibboleth. Moreover, can you point to an instance where he initiated a personal attack. He was always the counter puncher – literally on one occasion.. His best counter-attacks were on Colin Moyle. But that was strictly personal (Moyle got personal by bringing Thea and their cat into a barrel scraping Parliamentary debate), NOT business.

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  9. SPC (5,472 comments) says:

    What “all red melons do”, what all people we use that label for are like …

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  10. NK (1,101 comments) says:

    Layton also says he would not implement the Labour-Greens’ NZ Power proposal because it would contravene the requirements of the regulator’s legislation “to promote competition in, reliable supply by, and the efficient operation of the electricity industry for the long term benefit of consumers.”

    Asked whether he would be able to serve on the Electricity Authority if a Labour-Green government were elected, Layton said: “I personally wouldn’t.”

    What he is effectively saying is that their proposal threatens reliable supply.

    No.

    What he *is* saying is that the Greens proposal of NZ Power is illegal – it’s against the law. Hang on. Didn’t they just commission Stephen Franks to write an opinion on the Sky City convention centre deal that said…..um….er…. it was possibly illegal and against the law and aren’t they shouting that from the rooftops right about now?

    Very strange to see unabashed hypocrisy from the Watermelons.

    I would never have thought that would ever happen.

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  11. queenstfarmer (750 comments) says:

    Russel Norman confirms the trend: the Greens have officially gone nasty and unprincipled.

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  12. SPC (5,472 comments) says:

    NK, he is not saying that an alternative approach is illegal, just that in his opinion it is not the best way to go about meeting those requirements.

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  13. labrator (1,814 comments) says:

    “Dr Layton’s extraordinary foray into political debate is nothing more than a National Party-appointed civil servant who has failed to do his job and is now trying to protect his patch,” said Dr Norman.

    Frightening escalation in rhetoric from Dr Norman. If the Chairman of the Electricity Authority cannot deliver an industry paper to industry group without being banded partisan, a failure and politicised I hate to think what Norman would do if he was in power.

    Where is Turei in all this? If they’re equal leaders, how come Norman is always the one in the headlines on attack mode?

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  14. Keeping Stock (10,161 comments) says:

    @ labrator – check this video out:

    [youtube http://www.youtube.com/watch?v=lnYwrWmyGT4&w=560&h=315

    Metiria Turei was trying to pint-score against Tony Ryall, but he swatted her and Jacinda Ardern away with both a degree of poise and his normal sartorial splendour :D

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  15. SPC (5,472 comments) says:

    NK, to confirm my interpretation of it

    Layton said the authority had the power to replace the present wholesale market with a single state-controlled buyer, but would not do so as it “does not believe they will promote the long-term benefit of consumers”.

    http://www.stuff.co.nz/dominion-post/news/politics/8762753/Greens-criticise-Electricity-Authority-chairman

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  16. Paulus (2,540 comments) says:

    Remember the Power outages !

    Under the Green policy it will, sure as day comes after night, occur

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  17. NK (1,101 comments) says:

    SPC – if it “contravenes the requirements of the legislation”, then it’s against the law.

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  18. Akld Commercial Lawyer (165 comments) says:

    I read Dr Layton’s paper with interest and very much look forward to further contributions by the Offsetting Behaviour team at Canterbury University.

    As a simple lawyer, whilst I have my own views about the so-called analysis that underpins the Power NZ “plan”, I will leave it to those who are far more qualified than I to address this latest information.

    However, may I point out that it is not just the Greens who are playing the man rather than the ball here. Parker’s “respectful” reposte includes a couple of gems of the “of course he would say that” variety such as unsubtle digs about defending his own handiwork and, a personal favourite, not giving Wolak the decency of right of reply. Well, ahem, to accuse Dr Layton of shoddy practice in this respect is a bit of the old raw prawn – when only a few paras earlier, Parker is damning him for not only being the architect of the system that is being the subject of criticism but also having the temerity to defend it. And by the by, the peer reviews that Dr Layton refers to have been available for many moons. It was the Offsetting Behaviour team that, unhelpfully to Parker, reminded the public of their existence only a matter of hours after the Power NZ announcement.

    Next, many of the other planks of Parker’s “respectful” critique are matters that occurred on his watch and which, up until his very recent tack hard left, he continued to support.

    The bottom line for the Power NZ plan is best expressed by Dr Lew Evans, namely that it is (at best) wealth re-distribution among households where the extra taxation required to pay for this policy differs from the discount on the household electricity bill. In other words, eat the rich. But at great cost to the productive sector. To the layman such as myself, Dr Layton’s transparency about elements in the current framework that did not work and have been altered or are under is much more logical and applies orthodox economics.

    Finally, this stunt, has cost all of us with suppressed demand and pricing for MRP and a windfall gain for a few fund managers who will get their portfolio weightings at a far lower entry cost than they otherwise might have done. Clearly there is hedge fund activity occurring in the trading of MRP shares, as exhibited by the post-float patterns, benefiting the very people that Parker and his cohorts profess to hate.

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  19. SPC (5,472 comments) says:

    NK, Layton is not a lawyer nor citing a legal opinion, he is offering his opinion about the best way to meet the requirements of the legislation – that he would not want to be involved in the implementation or oversight of the one buyer system because he did not think it the best way to meet legislated for objectives.

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  20. Tom Jackson (2,479 comments) says:

    Who to trust: the Oxford educated Bertram, or the hack who did his PhD at one of our podunk McUniversities?

    Indeed.

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  21. beautox (433 comments) says:

    I love this ‘race to the bottom’ – can’t wait until the election proper – can you imagine Normal, Peters and Shearer all trying to outdo each other for the most populist, crass, stupid ideas.

    Norman is convinced that the greens are on the rise. Last election they got many more seats and this time he thinks it’s only natural to have even more. But he’s deluded. That was the most seats the greens will ever have. I can’t wait to see his face.

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