Kiwi Polemicist

May 23, 2009

• The Commerce Commission report on electricity companies: fact and fiction

The comments button is at the bottom right of this post.

The Commerce Commission has released its report on the electricity sector and all the lefties are bleating about Bad Big Business.

I’m not going to attempt to analyse the electricity sector or critique the report, but I do want to show you what language is being used by the government and media outlets in order to put a spin on things. First, the facts: what the Commerce Commission says is

By comparing the actual wholesale prices with hypothetical competitive benchmark prices, Professor Wolak estimated that the wholesale prices charged over the period 2001 to mid-2007 resulted in an extra $4.3 billion in earnings to all generators over those that they would have earned under competitive conditions.

That’s as plain as can be: by using “hypothetical” data Wolak “estimated” that the electricity generators would have made less money in “competitive conditions” (note the assumption that the present market isn’t competitive). How much did you, the taxpayer, pay for the startling revelation that companies charge more when competition is low? The report goes on to say that the electricity companies have done nothing wrong:

However, the Commission concludes in the case of this investigation that the gentailers are using that market power to maximise their profits in a purely legitimate way within the current market structure, design and rules.

In my humble opinion this report is a non-event, just another waste of taxpayers money. But this is a Socialist country and Big Business Is Bad, so everyone gets forgets that most of the electricity sector is owned by the state and then the fiction, the spin, starts. As usual, smelly brown stuff emanates from the Beehive: Gerry Brownlee, Minister of Energy and Resources, says

The Commission’s analysis, based on work by Stanford University Professor Frank Wolak, suggests that over six and a half years the generators have used that market power to earn $4.3 billion more than what should have been the case.

Note the use of the word “should”, which implies immoral behaviour of the part of the electricity companies. Brownlee is, by implication, saying that the generators should not have earned that $4.3b. This is entirely different to the Commerce Commission’s statement that the earnings of the generators would have been $4.3b less in a competitive market.

The NZ Herald extends the fiction into the realms of fantasy, saying

The report estimated the companies had been profiteering, perhaps to the tune of more than $4 billion.

Profiteering is, according to my dictionary, the making of excessive profits. This is clearly not what the Commerce Commission is saying.

Another Herald article says

Power generators overcharged customers $4.3 billion over six years by using market dominance, according to a Commerce Commission report.

That is quite simply a lie: click here to see another lie from the Herald.

Stuff goes even further into the land of fiction and fantasy: before the report came out there was an article entitled Power firms gouged $4b, then another saying

The Government is advising energy companies against further price rises after the Commerce Commission found generators used their market power to gouge users by more than $4 billion.

“Gouge” is a term from the USA, meaning to extort or swindle. Again, this bears no similarity to what the Commerce Commission says.

Parenthetically, there is no such thing as “excessive profits”: that is a Socialist/Marxist notion. See my earlier post for a classic example of this fiscal fiction from Barack Obama.

I hope that you can now clearly see the twisting of the truth being done by the government and the media. In the internet age it’s worth spending a few minutes and finding the horse’s mouth.

What do you think about the way that Brownlee and the media are portraying what the Commerce Commission says?




  1. Well, I disagree with you entirely, we have been ripped off by the electricity companies, though certainly with the collusion of successive governments. What else would you expect? That’s how corporatist economics works, and how it’s now working in the world at large, with the worst economic crisis since WW2 and trillions of dollars being spent by us poor suckers on propping up the crooked corporations that got us into this mess in the first place.

    Max Bradford’s reforms were the result of a capitulation to an economic theory which is akin to religious dogma, and just as practical. The electricity companies may have acted legally, but morally and ethically they are bankrupt, like the rest of the New Zealand and world economy.

    Your statement that New Zealand is a socialist country is totally bizarre. Almost all the means of production in New Zealand are now in private hands, our inequality index is one of the highest in the OECD, and our total tax rates amongst the lowest in the OECD. When companies who have done nothing to deserve the position they have in our society can abuse their economic powers to rip off the country to the tune of over $4 billion then watch out, because before too long, when the population actually realise how they have been abused, this country may indeed become a socialist one.

    If you wish to see your capitalist system survive, then my first suggestion to you is to make sure your friends behave themselves, or they’ll go the way of any minor royalty in Europe in the early part of last century, or the French aristocracy a century and a half before that. What we are seeing at the moment are the capitalists digging themselves the biggest grave in history, if they don’t wish personally to be the ones filling it, a degree of humility and a few million Mea Culpas might be a good start.

    Comment by John Monro, New Zealand — May 31, 2009 @ 4:52 pm

    • John: thank you for your comment. I do not agree with what you say, but I will continue to defend your right to say it.

      Comment by Kiwi Polemicist — June 1, 2009 @ 10:44 am

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