The Opposition is touring the country peddling its power policy.
Dr Muriel Newman points out is has already cost us millions of dollars in sabotaging the Mighty river Power Float:
Just days before the listing, Labour and the Greens announced their intention to regulate the wholesale pricing of the electricity industry should they become the government in 2014. This announcement created such a shockwave that the sale of Mighty River Power had to be suspended to allow investors time to back out of the deal. As a result many tens of thousands of investors who had expressed an interest in investing did not do so and many tens of millions of dollars were wiped off the value of the government’s shareholding. Within two days of the Labour-Green announcement, the share market value of Contact Energy, Trust Power and Infratil had fallen by almost $600 million.
It is fair to say that as a result of the greed of the Maori Council and the political uncertainty created by Labour and the Greens, New Zealanders lost out. The proceeds of the Mighty River sale were less than expected, so less investment money is available for spending on hospitals and schools than would have been the case if Labour, in particular, had not played politics.
The point is that people have come to expect the Greens to demonstrate their deep socialist roots and extremism when it comes to policy-making. In spite of their clever portrayal of financial credibility, even a cursory examination of their policy proposals reveal how ideologically driven and deeply flawed they actually are.
However, the markets expect Labour to produce a rational policy platform – one designed to take the country forward, not backwards into the dark ages. Yet, if their plan to re-nationalise pricing in the electricity industry ever became the law, industry experts warn that the power cuts of bygone years, would again become part of our future. . .
The architect of National’s electricity reforms, Max Bradford, compares power policies of different political parties:
The Labour and Green parties have announced a policy to effectively nationalize privately and publicly owned companies by controlling their prices and their profits. NZ First proposes to reacquire the generation companies and create one large state-owned generator like the NZ Electricity Department (NZED) once was. They believe they can force down electricity prices, while at the same time guaranteeing security of electricity supply and encourage investment in electricity generation and distribution.
National, on the other hand, believes that the electricity sector works best within a competitive market, with a mix of private and public ownership, and regulation where there is no competition in those parts of the sector where there can be no competition i.e. the local lines companies and Transpower. This is the best way to get the lowest electricity prices consistent with guaranteeing security of supply and sector investment to meet increasing demand.
These are dramatically different approaches.
Furthermore, it seems that the National Government will proceed to partially privatize Meridian Energy now that the uncertainty over the Tiwai smelter’s future has been delayed for a few years. This follows the successful partial float of Mighty River Power.
National’s approach is followed by the rest of the world and gets security of electricity supply and the lowest power prices possible consistent with a long-term viable sector.
It is my view too, not from any ideological perspective, but simply from what achieves the best practical result for consumers: New Zealand’s energy history and experience in world energy markets shows that government owned or controlled energy companies cost consumers – or taxpayers where subsidies are paid – far more than an efficient competitive energy sector, with well designed regulation where it is necessary to make the markets work. . . .
The opposition’s policies are a prescription for price rises, insecure supply, and power cuts.
. . . Some people in New Zealand believe that the electricity sector cannot be competitive, and prices will always be higher than in a state owned, politically determined industry. This belief is in spite of the fact that every other sector of the economy once owned by the government (e.g. telecommunications and airlines) is now operating in competitive markets, giving consumers choice and lower prices.
How many people would want the government to monopolize air travel or telecommunications again? Competition has produced palpable benefits for consumers, and has generated tax revenue for the government, whereas in the past taxpayers had been subsidizing these sectors. . .
The Bradford reforms were criticised from all sides but when competition was introduced in 1998-99, real electricity prices fell on average for four years. That hadn’t happened in the preceding 20-30 years of state ownership and control.
. . . Prices fell more for some consumers than others: the commercial sector, and farming had been subsidizing households for years as prices were politically determined, with the result that very high non-household power prices helped make business and farming internationally uncompetitive.
Inflation adjusted prices for local lines distribution companies fell substantially for some years after 1999, as the regulator – the Commerce Commission – forced these monopoly companies to seek cost efficiencies and only allowed a reduced rate of return on capital because of the lower commercial risks they faced compared to competitive companies.
In 2002, the then Labour government began to re-regulate the market in a series of policy moves, although they didn’t move to change the structure of the market finally established in 1998 after a decade of reform.
The overall effect of these moves was to reduce the competitive pressures on the generators. Government policies reduced the ability of companies to build low cost thermal generation (such as low emission coal fired stations). There were other pressures as well that no government could avoid e.g. the ending of low cost gas supplies from the Maui gas-field, and the addition of increasingly expensive new generation capacity as lower cost alternatives were not available (such as wind power).
The result was a 72 percent increase in inflation adjusted power prices between 2002 and 2008. This had nothing to do with the structure of the market, but was principally the result of Labour’s policy mix where the market could not find the lowest cost generation capacity and the downward pressure on electricity prices of the 1998-99 reforms was eliminated by government policy.
During this time, the government also sought higher dividends from the state owned power companies, which in turn put upward pressure on prices.
After its election in 2008, National reinstated the policy pressures on competitive producers and retailers. Consumers were encouraged to shop around for alternative electricity suppliers, just as they do for air travel, mobile phones, or petrol, with initiatives like Powershop, the What’s My Number campaign and greater transparency of pricing.
As a result, power prices have risen at a far slower rate than in the 7 years prior to 2008. Whether they can or will fall further on a sustainable basis, depends on the policies being followed by the government of the day, and perhaps more importantly on the cost of each new increment of electricity generation capacity as New Zealand has run out of “cheap” renewable energy such as hydro. . .
He has suggestions for further improvements which would make the market work better, and put pressure on the industry to deliver the lowest possible prices to consumers.
I would include the following:
- Mandating smart meters into all electricity consumers’ premises
- Consider removing metering from the generators and putting them in the hands of independent meter operators or lines companies
- Improve the ability of independent retailers of electricity to provide electricity to household consumers, by removing any barriers to their ability to buy power from generators, independent retailers or the wholesale market
- Providing a power tariff for household consumers to buy power through the wholesale market (to get the benefit of low prices when the wholesale market is over-supplied)
- Make it easier for individuals to generate their own power and supply into the grid, with a certain, if necessary mandated, tariff payable by lines or generation companies
He identifies serious shortcomings used by the Labour and Green parties to justify their policy and concludes:
As a country we have clearly reached a fork in the road: do we continue to promote competitive measures to force competitive generators to look for lower cost solutions, together with sensible regulation on monopoly parts of the electricity sector; or do we return to the post-war model of monopoly state ownership and control, where political parties determine prices and profits?
We’ve got a choice.
There’s the LabourGreen policy which puts power in the hands of politicians and bureaucrats or National’s policy which puts the power in the hands of consumers.