Wolak on electricity reforms

Frank Wolak writes in the NZ Herald:

There is not a lot to like about residential electricity prices in New Zealand.

According to data from the Ministry of Economic Development, average residential retail electricity prices have almost doubled since 2000. This had led to calls for drastic reforms of the industry to better serve the interests of New Zealanders.

This desire to “reboot” the electricity supply industry is understandable, but it is almost certainly not the best course of action. 

Frank Wolak is the economist and electricity expert whose earlier work is cited numerous times by Labour as rationale for their electricity nationalisation policy. His explicit rejection of their policy as undesirable, speaks volumes.

As a participant in many electricity industry restructuring processes around the world, one important lesson that I have learned is that all reforms start with significant unintended defects that can only be eliminated through a rigorous ongoing analysis of market outcomes and targeted regulatory reforms.

Unintended consequences may include running out of power, as is almost the case in California.

Many features of the current industry structure are consistent with international best-practice and a number of positive changes have been implemented since I completed my report for the Commerce Commission in 2009.

This is also a key point. Labour quote Wolak’s 2009 report, and ignore that there have been significant changes since then. This is oen reason why retail price increases are less than half under National, than occurred under Labour.

Wolak also has a number of suggestions as to how to improve the current regulatory framework to benefit consumers more. I agree with him that the focus should be on making competition work better – not on destroying the competitive generator market as Labour proposes.