Tuesday, 3 October 2017

More, please

The Electricity Authority has just come out with its latest annual report, and I was pleased to see it continues to report on the state of competition in the various electricity markets: competition, along with efficiency and reliability, are the three core things the Authority focuses on.

It's also great to see the Authority having a go at measuring whether electricity markets have actually become more competitive or not. It's good that there are specifics like the success of the What's My Number campaign, but it's better again if you can assemble some hard or hardish data on the state of overall competitive play. You're never going to pin it down exactly but this Annual Report - and previous exercises which I posted about here and here - have given it a good go.

Here are a couple of the more interesting measures the Authority has tracked (they're down the back in Appendix A). The HHI concentration index for the residential retail market is going down - though it's still on the borderline (2500 or so) between "moderately concentrated" and "highly concentrated" as the US competition authorities would describe it - and the market shares of the top 1, 2 3 and 4 suppliers (the CR measures in the right hand panel) have been slowly dropping.


Here's the HHI for the generation market. It's far from a dramatic movement, but every little helps.


Here's something a bit more complex - the percentage of time a large generator has had the field to itself in a particular area: it's the only one around who can supply energy, and it has surplus energy to provide after meeting its own retail or other contractual demand. In the industry jargon it is the "net pivotal supplier", or in plain English it can hold the rest of us to ransom and ramp up prices. Again it's good news: it doesn't happen very often. There's a net pivotal supplier only 2% of the time.


Things like market shares however don't always tell you a lot: you could, for example, have vigorous competitors going at it hammer and tongs, with their marketing efforts cancelling each other out, so market shares don't move, or you could have cosy tacit collusion, and again market shares don't move. So the Authority has chucked in some behavioural data as well. Here's how often residential customers get approached to switch suppliers. Answer: more often.


Overall, the data show some modest to decent improvement in competition across many, though not all, metrics. Good stuff.

But I'll bet there's a question already on your mind. How come we're not seeing this sort of information coming out on other important markets?

Partly, of course, it's because most other sectors don't have a sectoral regulator. But partly it's because the Commerce Commission still remains hamstrung in its abilities to have a look. There is a proposal to let it do "market studies", but (as I said here) it's very tightly circumscribed and in any event is some considerable time away from being implemented, given the glacial pace of changes to our competition law.

Yet we know that we need to find out more about the sort of competitive choice consumers are getting in other industries beyond electricity (where the Authority is doing a fine job) and telecommunications (where the Telco Commissioner is also on the ball). We know, for example, that consumers face higher prices for petrol in areas where Gull isn't a competitor, but we only know that because MBIE was ordered to look into it as a one-off investigation.

Why aren't we getting the same level of pro-consumer inquiry in other markets?

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