The closure of Hazelwood Power Station removed a significant amount of generation capacity from the National Electricity Market (NEM). A recent report by Bruce Mountain and Steven Percy concludes that large electricity generators exploited the closure to exercise market power. The authors claim that this was blatant price gouging that left electricity consumers nearly $3.5 billion out of pocket. Federal Energy Minister, Angus Taylor, immediately seized on the research as support for his “Big Stick” legislation, which would introduce draconian interventions in the NEM, supposedly to end “abuse of market power.” A previous bulletin from Frontier Economics examined this legislation.
How accurate are the authors’ claims? Is this the best explanation for the effects of the closure? These questions are critical as bad government policy should not be lent credence by equally bad ‘evidence’. Market Power Misdiagnosed reveals that Mountain and Percy reached the wrong conclusions due to fatal flaws in their analytical approach. Our bulletin sets out why.