Farrar’s dodgy statistics in energy SOE privatisation debate

David Farrar posted at Kiwiblog yesterday in response to a statement by Phil Goff on energy SOE privatisation:

So in Auckland [listed company] Contact [Energy] is cheaper than the three SOEs. The total opposite to what Goff claimed. They are in fact $178 cheaper than the most expensive SOE, not $500 more expensive… [In] Christchurch … Contact is cheaper than two of the SOEs. … In Wellington they are more expensive, but by only $13 to $148. … [In] Dunedin … Contact is cheaper than two of the SOEs.

On the face of it, that seems to be an argument that a listed privatised company delivers domestic electricity supply as cheaply or cheaper than the SOEs do. But what Farrar has done is cherry-pick only the November 2011 statistics from the Consumer Powerswitch website.

Here’s a chart from that site of the prices for the various electricity retailers to Dunedin over the last three years:

Contact actually had substantially higher prices in Dunedin than any of the SOEs for the entire period between November 2008 and August 2011.  It has been only the last four months that it has been (slightly) cheaper than Meridian and Mercury, but still significantly more expensive than Genesis.

Similarly, in Auckland, Contact was more expensive than any of the three SOEs between July 2010 & July 2011. In Wellington, Contact was most expensive between November 2008 and November 2011– the entirety of the last 3 years. And in Christchurch, Contact was most expensive between March 2011 and July 2011.

Farrar also fails to take into account the pricing of Contact’s 100% owned subsidiary, Empower, which where it provides retail electricity supply has significantly higher prices than any of the three SOEs for the entire three year period (see links to Auckland, Wellington, and Christchurch prices above).

Farrar might be right to call out Goff on the $500 annual price differential he claims between Contact and the SOEs – that figure seems to me to have been either exaggerated or cherry-picked.

But to dogwhistle that privatisation will bring lower electricity prices is simply not supported by the evidence.

Incidentally, I’m somewhat suspicious about the sudden and dramatic drop in Contact’s domestic electricity prices from August 2011, just after National’s SOE privatisation announcement.  I’m wondering if this is a loss-leading exercise to gain market share before the SOEs are privatised.

Max Bradford’s unfinished business

Remember this guy?

Yes it’s former National Party Energy Minister Max Bradford. The same Max Bradford whom I recall Paul Holmes continually lampooning in the lead-up to the 1999 election by replaying a clip of him saying:

…competition would bring electricity prices for the consumer down.

Well, it hadn’t by 1999 and, as the Commerce Commission has found, it still hasn’t. Electricity consumers have been ripped off to the extent of $4.3 billion since Bradford’s reforms came into effect according to the research conducted by Professor Frank Wolak of Stanford University for the Commission.

What’s worse is that according to the Commerce Commission it has all been perfectly legal.

The Max Bradford solution was to split the old Electricity Corporation up into four corporate entities to force them to act competitively. They privatised one of them, Contact Energy, in 1999. Fortunately, National lost office before they managed to hock off the other three, Meridian Energy, Genesis Energy and Mighty River Power.

The competitive model has been shown to be a miserable failure. So what’s the current Minister of Energy Gerry Brownlee’s solution?

Mr Brownlee said that the Government was prepared to make big changes to the electricity industry to stop massive price rises.

That included examining the market model introduced in the late 1990s by the former National government and the possibility of breaking up big state-owned retailer-generators such as Meridian and Genesis, he said.

He doesn’t go as far as using the “P-word” that National Ministers have been prohibited from saying, but it’s pretty clear that he’s thinking about breaking up and privatising the state-owned electricity generating companies, which is really just finishing Max Bradford’s unfinished business.

At least with three of the big generation companies in state ownership, much of the ill-gotten profits remain in New Zealand in the Government coffers. With what Brownlee is hinting at, the profits would head off overseas to the shareholders of big energy corporates.

Eddie over at The Standard has a different idea.

Buy back Contact (work out a fair share price and do it through legislation). Put the whole thing back into one and set it some simple goals: reliable supply at a steady, low price and phasing out fossil fuels.

I agree.