Rogue capitalism

Last week I highlighted a revolting case of market manipulation by electricity gentailer Genesis Energy. Faced with an ordinary maintenance shutdown which gave them a temporary monopoly on power in Auckland, Genesis hiked the price of power from its Huntly power station, generating windfall profits. Over on interest.co.nz, Ari Sargent has more details - and it turns out it was much worse than I thought. Genesis didn't quadruple power prices, as suggested by the initial RNZ report - they hiked them to $20,000 an hour, over 250 times the normal price:

The price Genesis named was $20,000 per megawatt hour. No, that’s not a misprint. It’s a 26,700% increase on the $75 they were charging the previous week. Based on the previous week’s prices, it was $230,000 worth of electricity. Over the seven hours that they had the market cornered, Genesis pulled in a cool $56 million. Not a bad afternoon’s work.

The Electricity Authority is investigating. They say it’s a complex matter and it will take some weeks to decide if it was right or wrong.

But I don’t think the average New Zealander sees it as complex. Most people I’ve spoken to see last Saturday afternoon for what it was - a chilling and cynical act of deliberate market manipulation motivated by greed on a scale that we’ve never seen before in New Zealand. And the facts support this simpler view; Genesis increased their generation from Tokaanu power station south of Taupo to lock out competitor generation into Auckland, manipulated their market offers for Huntly power station to sell their energy at prices in excess of $19,500/MWh, reducing its output to a little over a half of the Saturday prior, despite the transmission outage.

Making $56 million in an afternoon out of $230,000 worth of the electricity that was generated to power our homes is wrong, plain and simple. It sounds like something from an Enron movie about rogue energy traders.

As an SOE, Genesis is legally obliged to behave in a socially responsible manner. This is the very opposite of socially responsible. Instead, it is rogue capitalism in action, the abuse of market power and the absence of competition to extort monopoly rents from captive customers - just like Enron in the (manufactured) 2001 California energy crisis. No proper market can permit such behaviour; if ours does, then it speaks of a fundamental failure of regulation on behalf of the government.

Meanwhile, with the government planning SOE selloffs, this sort of behaviour will increase. Any remaining sense of social responsibility will go out the window in favour of meeting the ever-increasing demands of foreign shareholders for higher and higher profits. Genesis's actions are a warning: a warning of what we will routinely face if we allow John Key and National to sell off our core infrastructure to their rich mates. And if we don't heed that warning, we'll all be paying the price.