Energy Crisis: Government weighs up electricity market intervention

Thursday, 8 August 2024

The Government is considering intervening in the electricity market to bring prices down, Resources Minister Shane Jones says.

Power users have been hit by a double whammy with wholesale electricity prices surging due to near record-low hydro lake levels for this time of year, and by gas shortages, with gas production down 20% on last year.

Energy Minister Simeon Brown told Parliament on Wednesday that the Gas Industry Company was developing a plan to import liquefied natural gas to help address the crisis.

The drop in gas production has had an impact both on major manufacturers that use it as a direct energy source and, indirectly, on them and other firms as gas is burnt to generate electricity to peak morning and evening electricity demand.

A Transpower spokesperson said there had only been four times in the past 90 years, when lake levels had been lower at this time of year.

“Hydro storage continues to decline, although the electricity risk also shifts downward in the coming months as inflows are expected to increase based on historic trends, along with lower demand over spring and summer,” a Transpower report released on Tuesday said.

Jones told RNZ that advice was being sought on potential regulatory interventions in the electricity sector.

“For a long time I've felt there are some significant deficiencies in the actually structural make-up of our wholesale energy market,” he said.

“The gentailers no longer operate in New Zealand in a way that enhances competitiveness, number one,” he said. “Number two, the gentailers no longer operate in a vein that boosts or gives greater primacy to the greater interests.”

Jones ramped up the rhetoric, accusing the big power companies of profiteering and saying the Government was ready to weigh in if needed while also taking aim at the regulator, the Electricity Authority (EA).

“There are provisions under the existing electricity legislation that enables the Crown to use a code of conduct which has legal force to change their behaviour,' he said.

“There's nothing to stop the Crown from codifying a new set of rules, a new set of expectations under the EA … sadly that agency has proven to be a chocolate teapot in regulating the excess behaviour of the gentailers who I feel are probably the most powerful economic institutions in New Zealand beyond the supermarkets and the Aussie banks,” Jones told RNZ.

Victoria University economist Geoff Bertram also told RNZ’s Morning Report the electricity companies were operating like a cartel.

'That is to say they're a bunch of companies with enormous market power to exploit situations such as the present one and that market power is exercised at the pursuit of profits, which is what these companies are set up to do.'

He said ordinary household power users bore the brunt of high prices.

'The real pain from price gauging goes down on ordinary New Zealanders, not on the big companies.'

However, Bertram said the blame was not just on gentailers but on governments which had “systematically failed to fix it'.