Max Bradford’s High Power Price Legacy

Here is an opinion piece that I wrote for the Otago Daily Times about burgeoning power prices since Max Bradford’s reforms. It was published on 18 November 2013, but unfortunately does not seem to be available on their on line edition.

Why Central Otago residents are over-paying for power

Richard McKenzie

Deregulation of New Zealand’s power industry was meant to be good for consumers. It was supposed to encourage competition that would drive down prices.

The opposite has happened. Since deregulation, our annual power bills have increased at four times the rate of inflation. Despite being endowed with abundant electricity-generating capabilities, we’re paying as if we were shipping this stuff from Cape Reinga.

Prior to deregulation in 1999, we were well served by a local company, the Otago Central Electric Power Board (OCEPB). It owned and operated a few small power stations, distributed power, and sold the energy to the consumers. The cost of electricity was around 10 cents per unit – just as it still is in parts of Canada that are similarly endowed, where the industry has not been deregulated.

The ideology behind the deregulation of the industry was that the three arms of electricity supply (generation, lines, and retail) needed to be separated to encourage competition. Central Electric decided to divest its lines and retail components. The Central Lakes Trust was set up to manage the windfall, and the redistribution of those funds has been hugely beneficial to the region as a whole. So, there’s been at least one positive outcome. But at what cost?  Since deregulation in New Zealand, the price has ramped up at several times the inflation rate (as shown by the graph below).

PowerPricesFigure Caption. Increases in domestic energy charges, as recorded by an Alexandra resident who has used the same supplier throughout. The green line shows the price changes that would have been required to track inflation. The blue and red dashed curves show changes for 3 and 4 times the CPI rate, and the yellow curve shows the changes that would have occurred if there had been an annual increase of 10%.

It’s more expensive in winter because the energy retailers are charged more for the lines in winter than in summer. This particular company, TrustPower, passes those line costs on directly to consumers (some other retailers average these out over the year). Since deregulation, TrustPower’s summer prices have increased at three times the inflation rate, and in winter they have increased by four times the inflation rate (see graph). Most domestic power is used in winter heating, so prices have increased by around 10% per annum, compared with an annual inflation rate of around 2.5%.

So why have our electricity costs been increasing sharply?

The National government’s reforms of the 1990s may have resulted in lower power prices at the generator. But unfortunately, that’s not the end of the story. The power has to get from the generators to the consumers through power lines. Even though ample electricity for the whole of Central Otago is generated on our doorstep (e.g., Clyde, Roxburgh), these reticulation costs dominate the overall bill.

Our problem is that there is only one set of power lines. The company that owns them, Aurora Energy, is a subsidiary of the Dunedin City Council, so the high prices paid in Central Otago prop up the Dunedin City Council.  In the winter months around two thirds of the bill is just paying for these lines charges. Aurora Energy, can get away with demanding such a high fee because there’s no competition. If that was the intended outcome of deregulation, then it is a strange one. If the reforms had worked, there would be several competing lines companies. But that would mean multiple sets of power lines for each consumer, which doesn’t make sense. Until the big-sky landscape of Central Otago is festooned with power lines of multiple competing companies, in other words, a free-market model for private control of this sector of the industry just can’t work. Deregulation is not supposed to encourage monopolies, such as the one enjoyed by Aurora Energy. But that’s what has happened.

Central Otago encompasses a large area with a thinly spread population, so you might well expect higher lines charges than in urban areas. But, prior to the reforms, Central Electric delivered power for a reasonable price. Why not now? Do other regions have the same problem?

It may be that in Alexandra our lines charges pay for the energy to first be transported from Clyde to Dunedin, and then back to Alexandra. If that were the case, there would be bottlenecks on the way there and back, which the lines company could use as an excuse to hike its rates. But transport costs should be cheapest closer to the source. Here we see the opposite.

I’m a scientist, and in science we develop theories, or models, to explain our measurements. We then use these models as predictors of future change. But if the future reality differs from the model predictions, then it’s time to change the model. In this case, an economic model – was it based on any measurements at all? – predicted that electricity prices would fall, but in fact they have risen. It’s time to change the economic model.

But there is hope for the future.

A local company, Pioneer Generation, is in the process of changing from being solely a generation operation to one that also sells electricity to consumers. If the company, a remnant of Central Electric now owned by The Central Lakes Trust, can find a way to add lines to its operations, then we may see a return to the pre-deregulation days, when Central Otago got a fairer deal on electricity prices.  If Pioneer Generation can’t manage it, then perhaps the Central Otago District Council can assist with the lines take-over.

Failing that, our best hope would be for a return to a time when the lines infrastructure, like the roads, was in government hands. Yes, that was still a monopoly. But its responsibility was to fairness for the many and not the economic gain of a few.

 

 

 

 

 

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NIWA UV Workshop, 15-17 April 2014

You might want to consider registering for the next NIWA UV Workshop that I’m convening: “UV Radiation: Effects on Human Health and the Environment”, to be held at the Heritage Hotel, Auckland, 15-17 April 2014.

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And it’s Goodbye from Him…

Nice farewell from what’s left of the NIWA Lauder staff at the Chatto Creek Pub last week. We’ve achieved a lot, but it’s been a team effort. I’d like to thank all my colleagues there for their support over the last 33 years.

A bit of history. The Changing of the guard in, from ionospheric to stratospheric research.ChangeofGuard

Andrew Matthews, Paul Johnston, Gordon Keys, and Richard McKenzie in front of the dome housing the new Dobson spectrometer for ozone measurement (1991). In the background is the old antenna for the “ISIS” satellite which was involved with the earlier ionospheric measurements.

With close colleague and mentor, Paul Johnton, pointing past Tiger Hill towards Lauder from our home in Alexandra in November 2012.Richard&Paul_SouthlandTimes2_smallGood luck especially to Ben, Mike and Hisako in their efforts to keep the radiation program going at Lauder.

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What I did at Lauder

Written on my “Departure” from NIWA ….

UV Going, going ….

In retrospect, my main contribution over nearly 34 years at Lauder (from 12 Nov 1979 to 27 Sept 2012) has been setting up new directions of research as changing needs have arisen. This has always been in collaboration with others, especially Paul Johnston in the earlier years, and who has remained the technical guru and backstop throughout my career at Lauder. I’ve had great help too from Mike Kotkamp on observational studies; and from Greg Bodeker, and more recently Ben Liley on science and analysis. And I would have been lost without Hisako Shiona’s object-oriented programming capability. But everybody at Lauder, past and present over those years, has helped me one way or another. Some may say my main contribution has been overseeing the work of others, and taking all the credit. I hope that’s not really the case.

Paul Johnston and I made the move from our old ionospheric research of aurora to stratospheric research when threats to the ozone layer were first raised (i.e., a move from a region 80 km or more in the atmosphere down to around 15-50 km). These trace gas measurements followed on from work undertaken by A.W. (Tony) Harrison, a visitor from Canada just prior to my arrival. At the time of my arrival, Gordon Keys was boss, but he was on sabbatical in Germany. Our measurements of stratospheric NO2 and ozone began about the end of 1980. That turned out to be very important, as we were making the right measurements as the right time and place before the ozone hole was discovered. This move had huge implications for future funding and job security. If we hadn’t made the move, Lauder research would have died years ago. We face a similar challenge today with the issue of moving from stratospheric research to climate change research.

In the simplest terms, my research output is summarised by the following graph.

In the last 20 years, my main work focus has been the UV program, which is now a victim of its own success. We were delighted when we won government funding support for this new work, and we have always delivered far more than required. Because of our success, our services were in high demand. But, as external contracts were won, our core funding was used to prop up other less successful programs. Ironically they are now much better funded than the original cash cow. Ben Liley calls this the “poisoned chalice” of external funding. Unfortunately it tends to be shorter term and when it runs out, continued allocations of core funding are based on the status quo at the time, rather than at the time before the diversions.

I’m grateful for the support I’ve received from my seniors outside Lauder. In particular, Mike Collins and Gary Betteridge from DSIR. Paul Hargreaves was also supportive in the early NIWA days. But by and large, our research activities and directions at Lauder have been driven by Lauder staff: in particular Andrew Matthews, and then Greg Bodeker. This internal impetus in scientific direction and delivery has been the strength of Lauder, but it is also the reason why its activities are under-appreciated outside Lauder.

I’m pleased with my contribution to Lauder’s success over its first 50 years. Hopefully I’ll continue to contribute to its future success in my new emeritus role.

Read on for all the gory details ….

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Solar Home Electricity and Asset Sales

Solar energy is abundant, and its free

Use NIWA’s Solarview calculator to see how much energy is available at your place throughout the year.

It might be an economical alternative already. With talk of asset sales of power companies, and possible free-market ownership and control, the subject of the new economies of distributed solar energy is topical and important. The proposed asset sales are supposed to keep 51% in NZ hands, but whether that transpires or not in the long-term is an open question. Contact Energy for example was sold down the river years ago. It is now outside New Zealand’s control, and is based in Australia. I’m disappointed that the economy of solar energy solution is not assured. We’re in an ideal situation at our place in Alexandra, with the necessary shade-free 40 square meters of north-facing roof area in a sunny location. The trouble is that there is a disconnect between the times the energy arrives and the times you need it (and storage costs extra). The solar energy supply comes in the daylight hours, mainly in summer, but the majority of household demand is in the night, mainly in winter. There is no guarantee that you can sell excess energy back to the grid at competitive rates. Leadership is needed.

My son Hamish is US-based journalist. He helped me with this opinion piece in the 20 June 2012 issue of the Otago Daily Times.

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Song Sung Blue

I had to use a title like that because this is supposed to be  a UV blog, and blue is the closest colour to that. Ever been in the situation where you had a few drinks and wanted to burst into song to accompany that guitar-playing genius or pianist in your midst – but couldn’t remember any lyrics beyond the first line? Well,  I anticipated such a failing prior to my 50th birthday party (a long time ago now), and compiled a listing of song lyrics to save the day. Since then they have been used by many, and finally revised by my colleague Graeme Strang to include a hyperlinked index, which makes it much easier to navigate. So, if you’d like your very own copy, please feel free to get it from here by clicking Song lyrics.

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2010 Report on the Environmental Impacts of Ozone Depletion

The 2010 report from the UNEP Environmental Effects assessment Panel (EEAP) is now available from UNEP.  The report assesses the environmental impacts of ozone depletion and its interactions with climate change. The report is commissioned by the parties of the Montreal Protocol on Protection of the Ozone Layer, and the idea is to make it more accessible to the public, including politicans and policymakers,  by using language digestible to non-specialists the research fields involved. My own involvement was mainly with the first chapter of the report. The figure below shows how UV is expected to change over the years ahead.

Projected changes in clear-sky UV

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