First, a disclosure. Between 2003 and 2006, I was chief propagandist for Contact Energy.

So anything I say about this week’s electricity “revelations” is either hopelessly compromised or tempered by an undeniable and weary wisdom, depending on your point of view.

The thing is, Energy Minister Gerry Brownlee just doesn’t make sense when he dismisses the reality of rising electricity production costs as “one little aspect of a business plan.” That’s how he characterised the fact that no matter where you look – to wind, hydro, new gas, post-carbon coal, geothermal, tidal, solar and pretty much anything else you care to name – new energy sources cost more than the old ones.

Add in the fact that soon all energy prices will include the cost of carbon, and there’s no way that Brownlee’s Canute-like edict banning power price rises will hold for anything more than a few months. In fact, it will be intriguing to see who blinks first. All the power companies will have been looking at residential tariff increases in the three-to-seven percentage point range and some will be desperate to make that change to preserve profitability.

Of course, the appropriate public response to a power company crying poor is: “Diddums – wee”.

And Brownlee is playing that sentiment for all it’s worth. Neither his officials nor the affected power companies think that the $4.3 billion of so-called “over-charging” or “gouging” is an accurate number. It is the product of theoretical modelling by a world expert in energy market dynamics, Professor Frank Wolak, and there are big question marks over how he has priced water, which is at the heart of the issue.

Using seven years’ worth of data and taking almost five years to complete his analysis, Wolak has made an extraordinary discovery, not. That is, when energy is scarce it becomes more valuable. So, when hydro lakes are low, the wholesale price of electricity rises.

What Wolak found was that the rules in the New Zealand electricity market don’t work well when the system is under stress, such as occurs in a dry year. He found also that the single most likely player to exercise market power has been Meridian Energy. Not that you’d know that from this week’s announcements which appeared to make Meridian, Contact, MightyRiverPower, and Genesis equally culpable for ramping prices during hydro shortages.

Ironically, the only energy company found to have done anything even remotely dodgy was TrustPower, which got a slap on the hand from the Commerce Commission for initiating an apparently anti-competitive conversation with Genesis back in 2004.

Not that any of that matters politically, since noone likes power companies.

Armed with Wolak, Brownlee is able to have a whack at a popular whipping boy.

Yet when you strip away the rhetoric, the Government still wants electricity to be produced and traded according to signals from a market, and may only look to change the way the rules work when the system is under stress, eg when hydro lakes are low, the transmission system fails, or a big piece of gas-fired kit falls over unexpectedly.

There is virtually nobody in the electricity industry who doesn’t acknowledge that this would probably be a good thing, but from the political theatre surrounding the Wolak report release, anyone would think New Zealand’s electricity system was heading for a fundamental re-regulation.

Let’s hope that’s not the case. If we built power stations like we did in the good old days, we’d get projects like the Clyde Dam which is still producing electricity at way above the current market rates. The fact that water flowing through the dam is “free” is irrelevant when the total cost of the project made it uneconomic unless taxpayers carried its true cost. In other words, we’re still paying in our taxes for the Clyde Dam and its many cost-overruns, while continuing to live with the national myth that our power is cheap.

It has been cheap in the past, and it remains competitive with much of the OECD today. However, every single power company and energy analyst will tell you that the next tranche of new generation will cost more than the last.

The other thing to note is that this alleged “gouging” only occurred in three specific periods – the 2001, 2003 and 2006 dry winters.

Of greater interest perhaps, but outside the scope of Wolak, is the unfettered success that power companies have enjoyed in annually pushing up residential electricity prices well ahead of the rate of inflation.

While all face the same upward cost pressures, the reality is that the generator-retailers’ marketing capabilities have generally been somewhere in the Cro-Magnon Era until very recently.

Consumers are only just beginning to trust that they can change power provider without unleashing an unholy bureaucratic tangle, and in some parts of the country where there is little incentive to compete, many customers have yet to work out that there’s even a choice.

The Max Bradford reforms, from which the current market stems, never promised lower power prices, not that it stops critics constantly asserting that this was the case.

Rather, they promised to place competitive commercial pressure on power providers to ensure both that the lowest cost new generation was built first, and that retailers would curb their price setting in the face of retail competition.

The first of those two outcomes has arguably been achieved. The current race to build new geothermal plant, producing electricity at around eight cents per kilowatt hour, is testimony to that. When natural gas was coming out of the Maui field at half its current price, new geothermal developments made no sense at all and very little new was built for several decades.

Now, with wind and new gas sites typically producing electricity at above eight cents per Kwh, geothermal is suddenly flavour of the month.

The second intended outcome of the Bradford reforms – a dynamic and competitive retail electricity market – has been very slow in coming but it is starting to arrive. But it’s looking like too little too late for an industry just begging for a kicking from a Government that’s keen to be seen to be doing things.