Wednesday, March 30, 2011

The invisible hand in action

Meridian Energy and Mighty River Power are accusing fellow state-owned generator Genesis Energy of market manipulation after it hiked prices during a planned maintenance shutdown to make instant windfall profits:

Supplies to the upper North Island were restricted for about six hours, and Meridian Energy says its fellow state-owned rival, Genesis, took advantage by quadrupling the price it normally charges for electricity from its Huntly power station.

Meridian says it could lose a lot of money as a result.

Another state-owned generator, Mighty River Power, has put a figure of $25 million on its potential loss.

This sort of market manipulation is not new. In electricity crises in the 90's, generators were spilling water during a shortage to hike prices. And California's 2001 energy crisis was caused by corporations deliberately restricting supply, then further exploited by companies taking plants down for "maintenance" so as to profit from price spikes. In this case, we have a company exploiting a planned outage which removed the competition from the market - effectively abusing a (temporary) dominant market position. And we'll all end up paying for this, through higher power prices in the future. As for the "invisible hand of the market", rather than leading people to a socially beneficial outcome through greed and selfishness, it instead seems to be giving us the fingers.