Wolak says Labour/Green energy policy bad for competition

August 1st, 2013 at 3:17 pm by David Farrar

from Stanford University has been held up by and as the reason for their policy for . They always cite a report he did in 2009 that said the energy generators were making “super profits”. So bear in mind this is a professor whose work stands at the heart of their case for change.

So with interest I read an article in Energy News (not online) which states:

Moving to a single-buyer market for power generation would do nothing to improve competition, while a cost-based approach to pricing output also runs the risk of under-valuing water resources, a visiting US academic says.

Stanford University’s Professor Frank Wolak says he can’t see why New Zealand would want to turn its back on the electricity market structure it has now.

Markets are always improving and evolving, but he says he can’t see any benefit from moving to a single-buyer model. Cost-based hydro systems, like those in Chile and Brazil, also have their challenges and are not well-suited to a market like New Zealand where generation and retailing is integrated.

“It’s like rebooting your computer and starting out with all the same problems again,” Wolak said at a seminar in Wellington last night. “Why do it? If you’re this close to the finish line in terms of the actual market, and you’re this far away from the cost-based market, why would you want to do that?”

This is a devastating blow to Labour and Greens. Wolak’s research has been held up as their rationale for their policy. And he has said their proposals will do nothing for competition, and he sees no benefit from them.

The reality is that since Wolak’s report in 2009 (which is controversial), there have been significant changes to how the market operates, and price increases in the last few years have been much lower than under Labour previously.

Wolak says cost-based systems like those in Chile and Brazil have been successful in sustaining investment in new generation. But he says they don’t naturally encourage long-term contracting, which helps to put downward pressure on short-term prices. Nor are they well-suited to integrated generator-retailer markets like New Zealand.

In cost-based markets, governments or regulators have to set minimum hedging requirements, which also requires them to put a price on the cost of shortages. Given that is a political decision, those have tended to be set too low – about $300/MWh in the case of Chile – which has in turn kept prices low, encouraged the use of water for generation, and resulted in power shortages.

Now again – this is the view of the man whose research is constantly cited as reasons for the Labour/Greens policy.

Also note that Labour and Greens always say that his research showed generators made billions of dollars of excessive “super-profits”. Well again he is quoted as saying:

Wolak told the audience he never said New Zealand generators were making excessive profits. Such a calculation is “extremely difficult” without knowing the cost of capital of the businesses involved.

Will Labour and Greens now attack Wolak, after citing his work religiously? Or will they drop their dumb destructive policy?

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47 Responses to “Wolak says Labour/Green energy policy bad for competition”

  1. bhudson (4,740 comments) says:

    Or will they drop their dumb destructive policy?

    Unlikely. It they dropped their dumb and destructive policies the cupboard would be completely bare.

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  2. thedavincimode (6,800 comments) says:

    Oops!

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  3. Cunningham (844 comments) says:

    Haha comedy gold. What a bunch of fuckwits. It’s like they enjoy making fools of themselves!

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  4. Black with a Vengeance (1,865 comments) says:

    It’s not about competition though…it’s about halting the price gouging.

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  5. JeffW (327 comments) says:

    “Will Labour and Greens now attack Wolak, after citing his work religiously?”

    Much more likely that they will just ignore this inconvenient analysis.

    What do you think the odds are of the MSM picking this up and taking Labour and the melons to task?

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  6. RightNow (6,994 comments) says:

    “It’s not about competition though…it’s about halting the price gouging.”

    Already done when government changed in 2008.

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  7. queenstfarmer (782 comments) says:

    So Labour & the Greens have been lying about the whole thing. Sadly, I am not surprised.

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  8. ross69 (3,652 comments) says:

    In fact Wolak has never denied that power companies made super-normal profits. The super-normal profits were calculated by the Commerce Commission on the basis of his report. Is he suggesting his report was wrong?

    http://www.radionz.co.nz/audio/player/2552518

    Wolak “does agree with Labour and the Greens that electricity reforms to date have failed to deliver sufficient benefits to residential customers. Residential electricity tariffs have sprinted away since the late 1990s at a far greater pace than the rise in either wholesale market prices or the tariffs enjoyed by industrial and commercial customers….”Light-hand regulation is no regulation,” he says. Instead, New Zealand should “man up and regulate” in areas where no competition can occur.”

    Hmmm so he agrees there’s a problem which needs rectifying by way of regulation. Who would have thought?

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  9. ross69 (3,652 comments) says:

    Will Labour and Greens now attack Wolak, after citing his work religiously?

    No need to. Wolak has never denied that power companies have made super-normal profits, that consumers haven’t benefitted from the reforms, and that there ought to be regulation. That seems to be the same thing that the Greens and Labour are saying.

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  10. In Vino Veritas (139 comments) says:

    Ross 69. Read a bit more widely ross, parts of Wolaks report have been shown to be of incorrect methodology and conclusion. The critiques are available on the internet. And those critiques also conclude that super profits have not been taken by power companies. The Green\Labour reliance on Wolaks report is not only flawed (which they surely must have known), but now repudiated by its author! I’d say that was a pretty serious slap in the face for both parties, whichever way you want to cut it.

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  11. Cunningham (844 comments) says:

    ross69 FFS read what he said you muppet. This policy would cause massive change that needs to be heavily scrutinised. It is pretty damn obvious that the policy they are proposing is an absolute dog. Is there ever a situation where you won’t defend Labour? I support National but will readily admit when they have made mistakes. However cheerleaders such as yourself are so blinded by your ideology that you just refuse to see anything wrong with anything the left say. I find it strange that you can be so brainwashed by them. Don’t you have a working brain that can process the bullshit they spout?

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  12. queenstfarmer (782 comments) says:

    Ah good, Ross69 is here to fight his lost cause, just to keep up appearances I imagine.

    Wolak HAS denied the “super-profits” claim:

    … Stanford University’s Professor Frank Wolak – a top US electricity markets academic and one-time regulator – says that despite repeated assertions to the contrary, he never concluded that power companies here had ripped off consumers to the tune of $4.3 billion over the mid-2000’s

    And see DPF’s last quoted sentence:

    Wolak told the audience he never said New Zealand generators were making excessive profits…

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  13. Kelly (29 comments) says:

    Regardless of what he has said this is never going to make it to MSM so no one is going to be none the wiser. LG are just going to bowl ahead and stop mentioning his report and name.

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  14. RRM (9,933 comments) says:

    FAIL.

    See me after the class.

    – Prof. Wolak

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  15. Black with a Vengeance (1,865 comments) says:

    Already done when government changed in 2008.

    Oh please…it hasn’t even really begun under the new privately run schemes.

    If all the powercos get privatised, the pricefixing and gouging will make previous efforts look generous.

    Just like the oil companies, it’ll look like competition, but really…

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  16. stigie (1,222 comments) says:

    What a silly statement Black…

    No wonder the left are looking very sick in the polls !!

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  17. Auberon (873 comments) says:

    That silly little boy Gareth Hughes went into a prominent share-broking firm recently to tell the staff how the Greens’ single buyer policy was going to work.

    The unkind (but I’m told terribly polite) people with grey matter asked him some well thought through questions.

    His answers were not so well thought through.

    Then he got a bit flustered.

    Then he said, “well it’s just a proposal, and we’re always happy to receive your input.”

    At which point one of the directors thought it best to tell him there’s a difference between a proposal and a policy, and he’d better learn to live with his policy.

    Funny.

    At least I found it funny.

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  18. Cunningham (844 comments) says:

    Black with a Vengeance (1,296) Says:

    If all the powercos get privatised, the pricefixing and gouging will make previous efforts look generous.

    Give me a break. Labour were responsible for power companies rising prices by exctracting massive dividends from them (which they proposed to increased even more at the last election). So BWAV should the govt keep them and extract dividends which will result in prices going up? Or should they not collect dividends thereby making the argument from the left invalid (i.e. they return a crap load of money to the government). What is it going to be BWAV? The left think they can have it both ways.

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  19. burt (8,275 comments) says:

    So it sounds to me like the report says;

    Under the Labour government there was excessive profits being extracted from generation …. Which we already knew….

    But the lefties think it’s great when their government makes old people turn their heaters off because the money extracted from this is given back to them so they vote for Labour….

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  20. Black with a Vengeance (1,865 comments) says:

    So you think power prices are going to drop with increased competition under private management Cunningham ?

    pffffft…

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  21. Cunningham (844 comments) says:

    BWAV that’s not what I said. The left complain constantly about prices going up and then say how wonderful the assets are because of the big dividends the government gets. Well do ya think those things might be related????? They extract money from taxpayers via dividends and then give it back to us. It is a stealth tax!

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  22. wat dabney (3,778 comments) says:

    It’s not about competition though…it’s about halting the price gouging.

    The last Labour/Green government exploited its power monopoly to extort money (hitting the poorest hardest), therefore the government needs to retain its monopoly.

    Brilliant logic, Blacky.

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  23. dc (144 comments) says:

    Wolak says that the monopoly parts of the system, Transpower and the local lines companies, should be more heavily regulated. See handy summary at http://www.tvhe.co.nz/2013/08/01/wolak-strikes-back/ , which also has links to the full presentation and podcast.

    This is something the Labgreen’s policy bafflingly ignored, not sure why as it is obvious. Perhaps not such an easy political target as people tend to rage at the companies presenting them with the hefty bills, but behind the scenes the lines companies account for about half.

    He also suggested providing state-subsidised electricity to low income consumers, as in the California CARE program, which gives qualified customers a 20% discount. This seems better than the Greens’ “discounts for everybody” policy.

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  24. Peter (1,713 comments) says:

    The unkind (but I’m told terribly polite) people with grey matter asked him some well thought through questions.

    I’ve found many greenists aren’t used to being challenged, and are intellectually weaker for it. I’ve found they will ban you from their blogs if you’re too effective at doing so.

    I imagine greenists will completely ignore this report, as evidence-based decision making only seems to appeal if they agree with the the conclusion.

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  25. Black with a Vengeance (1,865 comments) says:

    The last Labour/Green government exploited its power monopoly to extort money (hitting the poorest hardest),

    They were different times in that there weren’t as many poor people who couldn’t pay their bills then.

    Times change and policies need to adapt. Parties need to change their stance on things.

    This gov’t has an ideological bent on privatising everything irrespective of the social cost as though the invisible hand of the market will wave it’s magic wand and the well to do will suddenly develop some empathy and become more charitable towards the underclasses.

    Maybe on Planet Key but for those of us here on Earth, reality works differently…

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  26. Cunningham (844 comments) says:

    Black with a Vengeance (1,301) Says:

    They were different times in that there weren’t as many poor people who couldn’t pay their bills then.

    Are you serious???? So because they were ‘different times’ it was quite OK to push power prices go up as much as they did (75% percent I believe)? That is the crux of everything that is wrong with the left. No respect whatsoever for peoples money. But that is fine according to you. Far out that is quite eye opening.

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  27. Black with a Vengeance (1,865 comments) says:

    Yeah…Just like i’m all for raising taxes on people who can afford it more.

    And thats the crux of everything that is wrong with the right. It’s all about the fucking bottom line and to hell with the social cost.

    Fuck the money. This is peoples lives we’re talking about !!!

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  28. wat dabney (3,778 comments) says:

    They were different times in that there weren’t as many poor people who couldn’t pay their bills then.

    What a load of absolute crap.

    Do you actually believe your own childish lies?

    And here you are confirming and excusing the fact that the government exploited its power monopoly to impose a highly regressive stealth tax.

    This gov’t has an ideological bent on privatising everything irrespective of the social cost

    Would you also describe opposition to wife-beating as mere ideology?

    The benefits of a free market accrue to consumers, not producers. The smashing of the abusive state monopoly is to be applauded by anyone who cares about fuel poverty.

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  29. Peter (1,713 comments) says:

    Fuck the money. This is peoples lives we’re talking about !!!

    Peoples lives are made miserable if there’s not enough money, failed distribution, and poor incentives. Capitalist markets seem to work better than the alternatives that have been tried this far.

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  30. kiwi in america (2,454 comments) says:

    BWAV
    Oil companies gouging? One of my businesses jointly owns the NZ and Aus licensing rights to a green transportation technology (one that requires no government subsidies I might add). The major integrated oil companies like Shell and BP are anxious to diversify as quickly as possible into the transportation natural gas space and our technology helps accelerate that process hence their desire to work with us. Shell’s senior executives told the technology owners that for an average heavy use large diesel truck (Category 8) travelling 100,000 miles/160,000 kms annually, the oil company’s total profit margin on the diesel sold to that truck owner over FOUR years was around $9,000 equating to about .10c a gallon or 0.03c a litre. Margins on petrol are about the same. Most petrol station owners make pretty much all their profit from the sale of non petroleum products in the station’s store! The attraction of NG is its clean burning and incredibly cheap and enables oil companies to simultaneously boost margins and still offer a retail fuel price that for wholesale users is about 1/2 the cost of diesel.

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  31. burt (8,275 comments) says:

    Black with a Vengeance

    So what is your real concern then?

    You have proven you think it’s fine to overcharge when we have the red team running the government – but it’s not OK when the blue team “might” do the same…..

    Let me guess – it’s good when Labour have all that extra revenue because it’s costs millions in photo-shopping to make a snagger-tooth monster look attractive on a pretty red plastic card – but people paying less for power under National might stop them voting Labour – Is that it ?

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  32. Black with a Vengeance (1,865 comments) says:

    It’s that it’s fine to overcharge people when they can afford it, but by the same token undercharge when they can’t.

    Nothing to do with team blue or red and everything to do with changing times.

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  33. Peter (1,713 comments) says:

    Black with a Vengeance, we want all people to have as low power costs as possible. Suppliers might not, but I’m sure National MPs and most National supporters do.

    We think market mechanisms are better placed to deliver it, and question whether direct government interference will do so. After all, it has been noted the Labour government gouged power prices using a stealth tax. Do you think this tax was good for consumers? Was it good that the poor paid higher power prices than need be?

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  34. OneTrack (3,116 comments) says:

    Peter, as I am sure Black will agree, it is ok when the left does it.

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  35. queenstfarmer (782 comments) says:

    Black with a Vengeance, you say:

    “They were different times in that there weren’t as many poor people who couldn’t pay their bills then

    While that is debatable, thank you at least for confirming that:

    a) Labour did in fact gouge the populace on power prices (why should we trust them now?); and

    b) you don’t care that they did, because some wealthier people could afford it.

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  36. Black with a Vengeance (1,865 comments) says:

    b)I don’t care that they did, because POORER people could afford it.

    …the point is, times have changed, that was years ago, get over it.

    adapt, evolve or die.

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  37. queenstfarmer (782 comments) says:

    Ha ha ha BwaV, yes I’m sure those poor people were just thrilled to have Labour gouge the hell out them on power prices. And I suppose that once Labour magically raises up everyone’s income, they’ll go right back to gouging because hey, they can afford it now!

    Good of you to clear that up.

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  38. Peter (1,713 comments) says:

    …the point is, times have changed, that was years ago, get over it.

    It shows form, so I’m not sure why you would trust them going forward. What has changed?

    Also, you haven’t told us why gouging the poor is fine “some of the time”? It’s surely bad all of the time, isn’t it? I do not wish to gouge the poor on power prices, ever.

    Perhaps that makes me more sympathetic to the plight of the poor than you?

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  39. Black with a Vengeance (1,865 comments) says:

    yes I’m sure those poor people were just thrilled to have Labour gouge the hell out them on power prices.

    Hahaha…Like you give a flying fuck about poor people or that they give a rats ass what Labour did a decade ago?

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  40. bhudson (4,740 comments) says:

    This is hardly the first time.

    Take Prof. Paul Callaghan for instance. In the 2011 campaign the Greens were singing his praises and how he endorsed their ‘green tech’ growth strategy.

    But this is what Prof . Callaghan had to say…

    Surely, then, I should support the Green Party suggestion. On the contrary, I oppose it wholeheartedly

    http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10755089

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  41. Ross12 (1,432 comments) says:

    But Black with a Vengeance — It doesn’t really matter if they put the policy in ( assuming they are elected) because they will also increase the ETS ( or if Norman has his way put a Carbon Tax in place) so any gains from the policy if it worked would be wiped out by the other policy. If fact poorer would worse off overall.

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  42. slightlyrighty (2,475 comments) says:

    It’s things like this that reinforce the notion that the current opposition, in trying to paint itself as a government in waiting, is only proving itself unfit to govern, hence RRM’s relief at the latest poll

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  43. ross69 (3,652 comments) says:

    FFS read what he said you muppet.

    Obviously you didn’t hear his interview with Kathryn Ryan. I suggest you do so before making a bigger clown of yourself.

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  44. kiwi in america (2,454 comments) says:

    Ross12 and BWAV
    In fact the Greens ban or tax list goes further than an expanded ETS or carbon tax. The following Green policies (most of which a left leaning Labour will likely adopt or agree with) will all have the effect of raising power or petrol prices further negating the illusionary savings from their state controlled buyer model:
    Ban any additional use of coal for energy
    Ban fixed electricity charges
    Ban further large hydro plants
    Ban nuclear power
    Ban further thermal generation
    All these will restrict supply and drive up costs.

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  45. Bogusnews (474 comments) says:

    BWAV, you are a worry sometimes.

    Things did not improve for the poor under Labour, in fact their policies had the opposite effect. If you want, I can point you to several reports that showed the poorest (typically polynesians and Maori’s ) were hurtling into poverty. The reason was clear, Labour introduced an additional 41 taxes, most of which were unavoidable by the poorest.

    One of the most telling moments of the previous administration came right at the end of the second term. Cullen, under intense questioning by the ACT party, was made to admit that once you took the extra charges Labour was clobbering us with into account, our average income had remained static for the last six years.

    Hows that Black, six years of the best economic conditions in anyone’s living memory and by Michael Cullens own admission the average NZ’er was right back to where he started.

    This of course was just when the massive increases in power prices were about to hit us. It astonishes me you are so keen to support such an incompetent and wasteful govt. They made the usual leftie noises about helping the poor, but the end result of their policies produced precisely the opposite effect.

    What do you do at night Black? You clearly spend your days dreaming.

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  46. Mark (1,488 comments) says:

    The Labour/Greens policy is not simply bad for competition it is the effective Nationalisation of the NZ power supply. Not im my memory have we seen a more deliberate dive to the very left of the political spectrum since the 1960’s

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  47. Black with a Vengeance (1,865 comments) says:

    I got 3 words for you that counters all your Bogusnews…WORKING FOR FAMILIES!

    Sometime in the near future your debt laden kids are gonna look back at Key’s time in power and think how could you have got it soooo wrong…

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