24 Sep 2013
This Update is an informal submission on a political proposal to replace New Zealand’s wholesale electricity market with a Central Buyer which would pay hydro power stations a lower price for their output than would have been expected from the market. The cost savings would be transferred to households and possibly other consumers.
The case for the changes is based on errors of understanding as to what has caused household electricity prices to rise over the last 25 years and a on a mistaken view that accounting revaluations of power stations have come at the expense of retail consumers. In fact:
• There is no evidence that the owners of hydro power stations have captured windfall profits.
• New Zealand household electricity prices are now at the lower end of international averages.
• Real household electricity prices have risen over the last 20 years, but the main cause of the increase was the removal of subsidies on local line charges.
• A Central Buyer would be highly disruptive and would almost certainly increase the cost of generation.
• A forced reduction of what is paid by households and to some generators would mainly be a cost on government (via lower tax and dividends). There are more effective means of reducing household poverty and ameliorating damp and cold houses.
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