Transpower and public ownership

We mentioned before that Transpower was excluded from public ownership.  Today we thought that we might offer more of an inside view as to why this is the case.  

1) There is no current competition for Transpower.  It is a monopoly.  

2) There are large barriers of entry into the Transpower market.  It is hugely expensive to build another national grid.  If one was built it would be unlikely to integrate in with the current network.  

3) Transpower has the right to essentially buy (or lease) land by force in order to build more pylons.  This can be quite controversial at times.  The reason this right is given is because the pylons often stretch over many different owners (generally farmers) and their properties.  If Transpower were to buy 9 of the 10 properties it needed the 10th owner would be able to charge an arm and a leg.  Also the areas of land Transpower builds on are of little use to anyone except the owner and transpower.  (Do you really want a small section of land that is landlocked by one other owner?)  This power is meant to enable transpower to expand the network in an efficient manner.  Would you really want another company given this right? 

All of the above indicates that Transpower is a monopoly and will remain one.  The standard argument for the government to retain ownership of a complete monopoly is that investors will want to maximize returns and this will come at the consumer's detriment. 

The problem with the power companies is that the individual lines companies are monopolies and some of them are privately owned.  Whilst the privatization of the power companies may make them more efficient (if you accept John Key's argument) the inefficiency of the lines monopoly's will remain and this will mean that overall all consumers are worse off. 

Hopefully this doesn't happen. 

Government may privatize electricity

From Kiwiblog

For all these reasons, the Government has asked Treasury for advice on the merits and viability of extending the mixed ownership model to four other state-owned companies – Mighty River Power, Meridian, Genesis and Solid Energy.


 Mighty River = Mercury,
Solid Energy is a coal producer.  


Essentially the National government is saying it may (will) privatize the electricity industry.  The notable exception is Trustpower, and we'll probably talk about that later.  


The reasons given seem to be:
1) We think the company will be better run.  
2) It will free up capital for the government.  


Point 2 is outside the realm of this blog and is political.  


However the first point is mentioned as follows


 that the company reaps the benefits of sharper commercial disciplines, more transparency and greater external oversight.


John Key used Air NZ as the example of why this method will work.  The questions is will this happen?  We think that the comparison with Air NZ is not the best analogy.  Air NZ has real competition, Quantas, cruise ships, Air Chile, etc.  
To make the Air NZ analogy it's like having a law in New Zealand that all airliners flying in and out of Auckland Airport have to use Air NZ planes.  


In New Zealand all electricity companies have to use the area lines companies and Trustpower.  So opening up the retail market may just be short sighted.  We've mentioned the role of lines companies in price rises before.  So opening up the Power Companies to individual ownership may not change this at all and the lines companies may stay the same keeping prices rising.


Also true competition only exists when there are alternative suppliers supplying identical products, but also when there are alternative suppliers supplying alternative products.  For domestic travel you can fly Air NZ, fly Quantas, drive, rent a car, take a bus, etc, etc.  
.  
If you want your computer to run you need electricity.  You really only have a handle of options all of which involve a traditional electricity company.  


For this reason we feel there is a much greater risk of the Power Companies just continuing with business as normal. To recap this is for two reasons
1) The same dependence on lines companies and Trustpower.
2)  The lack of real alternatives. 
A better analogy would be telecom.  It has been twenty years since telecom was privatized.  Real competition has only just started.  The service you get from telecom is universally condemned and the company itself is open to vilification.


The reasons are the same, all of the competition had to depend on the telecom lines (at least at first) and if you wanted to talk with other people for years there were no other options.  (Now there are mobile phones, landlines, and skype).  


We will of course be watching closely to see what happens.

Update on our last post

Our last post elicited a response from Genesis Energy.  This clarified the situation

1) The price rise was in Waitemata only (West and North Auckland).
2) The particularly low night rate (that affected 850 people) was actually a rate that should not have existed.  It appears we were wrong in suggesting it was the rate of a neighboring lines company.

Also they made a mention that no fish would have floated to the top of the Waikato river. They said they employ a person full time to ensure that the temperature of the river doesn't reach over 25 degrees.
They actually adjust production of electricity on a half hour basis depending on what the projected temperature of the river is likely to be.  

So apparently there are controls in place to prevent fish from dying, and we must have misunderstood our information.  Perhaps our source of information meant that if the turbines weren't taken off line the fish would have floated to the top of the river.

Fantastic Cartoon in Today's Herald

If you haven't seen it already, here is a cartoon from today's NZ herald

 

Quite why they are picking on Genesis Energy is beyond me.  All power companies are doing this.  Cartoon found here.

Genesis Energy's electricity price rise

The NZ Herald reports that Genesis Energy is increasing it's prices by as much as 20%.

Well.... sort of.

1) If you are one of Genesis Energy's 62,000 customers (which is 9% of Genesis Energy's customer base), your power will be going up 3%.  This sounds like a lines company price rise, which we have blogged about before.

2) There is a sub issue that 850 of these customers (so about 9% of the 9%) were being billed incorrectly.  This lends creditability to the theory that it is a lines company rise.  It looks as this 9% of the 9% were on the incorrect lines company charges, and are thus being increased.

3) It's a little bit unclear as to how much the nigh rate is rising by.  The story doesn't tell us whether the true pre rise rate is 10.37c or whether that was the cheaper rate the 850 customers were on.  Irrespective the 18.56c for night rate is now almost 75% of the average cost for a standard rate.  This deserves another blog post.

But I'll go back to the point we've made, power prices are just going to go up and up and up.  To reduce them you have to take action.  We recommend purchasing Power Panda products, but then we are biased.

Genesis Energy emails customers incorrectly

Burried in our papers is the admission that Genesis Energy incorrectly estimated it's customer's electricity consumption.  The story is that Genesis Energy when reviewing it's customer's accounts sent out the incorrect information to 13,800 customers.

There are a few interesting things that this story raises:

1) Genesis Energy contacts every customer every year with this right plan promise.  I thought that it was an automated process.  What makes this mailout different?  Does Genesis Energy design the formulea each time it performs this right plan promise? 

2) A partial solution is found in the words the computer "failed to pick up different power-use figures."  Which suggests to us that maybe it's the fact that most of these customers had advanced meters and so something in the transfer happened that the automated system didn't correctly calculate the usage.

3) I really want to know how the problem was picked up.  How was it picked up half way through the mail out? 

4) Genesis Energy thinks that the average powerbill is about 8400Kw which equates to $2467.67 on Power across an entire year.  This means that that the average person will save $500-$750 a year with a Power Panda.  Excellent new.

Taking the Huntley Power Station offline

We've been informed that the Huntly Power Station is now only running one of it's six turbines. 

The reason for this is that like all Power Stations Huntly heats water into steam and uses this to turn turbines.  The heated water at Huntly is then discharged into the river. 

This is why you'll find power stations along rivers. 

However due to the summer temperatures the hot water got even hotter. 

This is fantastic news if you live in Huntly and like to swim.  It's less good news when you consider that fish started floating to the top of the river and algae started growing. 

So five of the turbines were taken offline. 

This story again illustrates that due to the very small New Zealand economy very small changes can have large changes in our electricity industry. 

Of course this sends the price of electricity up, and hopefully this cost will be worn by Genesis Energy.  Hopefully it won't just increase it's electricity charges.