A couple of thoughts about news reports on the electricity review.
1. Electricity prices have indeed risen significantly in recent years, but so have fuel costs. It would be more sensible to compare power price changes with fuel costs than with the CPI.
2. I’m pleased I was wrong about the weather risk. This has been tackled in 2 ways. One is the $10/household/week penalty for demand reduction campaigns. The engineer’s group IPENZ notes that this “won’t make it rain“, but it does change incentives, and that should have some effect. Quite a neat solution IMHO.
The other tool to address the same problem is the asset swap which will give both Meridian and Genesis a mix of hydro and thermal plant. This is a structural rather than a regulatory solution. Its a low cost option because these are both SOEs. Most tellingly, it is also an implicit admission that the contracts market doesn’t work properly. In principle, these two firms should have been able to (and should have wanted to) contract for exactly the same outcomes as will be delivered by the asset swap. Its a worry that they did not.