LabourGreen power play will cost us all

April 24, 2014

Who are you going to believe – politicians trying to win votes or the director of the Programme on Energy and Sustainable Development and Holbrook working professor of commodity price studies with the department of economics at Stanford University?

Frank Wolak is the latter and he’s not impressed with the LabourGreen power plan:

This desire to “reboot” the electricity supply industry is understandable, but it is almost certainly not the best course of action. As a participant in many electricity industry restructuring processes around the world, one important lesson that I have learned is that all reforms start with significant unintended defects that can only be eliminated through a rigorous ongoing analysis of market outcomes and targeted regulatory reforms.

Many features of the current industry structure are consistent with international best-practice and a number of positive changes have been implemented since I completed my report for the Commerce Commission in 2009.

Continuing these efforts to identify and fix flaws in the existing market is likely to provide greater long-term benefits than undertaking a major restructuring of the industry. . .

He thinks major change is needed, but not the LabourGreen one.

His suggestion is to establish a regulator for the industry with a statutory mandate to protect electricity consumers from economic harm.

There are a number of legal rights that a regulator must have.

First, the regulator must have the ability to request any information from market participants necessary to carry out its statutory mandate, receive this information in a timely manner, and have the authority to impose financial penalties on market participants that fail to provide the requested information in a timely manner.

The regulator should also be allowed to require that all of the firms that it regulates prepare balance sheets and income statements using a standardised accounting system designed by the regulator. These accounting systems will allow the regulator to carry out the very important task of setting prices for monopoly services such as transmission access and distribution network access.

The regulator should be required to set prospectively the price of these monopoly services to allow the firm the opportunity to recover the prudently incurred cost of providing these services.

This does not mean that the firm is guaranteed full cost recovery regardless of how it incurs these costs. Because its price is prospectively set by the regulator, the firm’s revenues are independent of any actions it takes, so it has the opportunity to recover these costs if it incurs them in a manner consistent with what the regulator deemed to be reasonable when the price was set.

The final right of the regulator is to set the market rules governing the operation of the wholesale and retail markets.

Rather than allowing market participants to determine the terms and conditions governing participation in these markets, the regulator must set these market rules to protect the electricity consumers from economic harm. Market participants and other interested parties can provide input to this process, but ultimately the regulator must set these market rules because of the enormous impact they have on wholesale and retail electricity prices paid by consumers.

An essential feature of this redesigned regulatory process is an ongoing market monitoring process where the regulator uses data compiled from market participants and data submitted to and produced by the market operator to undertake market performance analyses. Although this market monitoring process is extremely data and human resource intensive, it is necessary for the regulator to anticipate significant market performance problems and take action to ensure a small problem does not become a large problem that harms consumers.

Another role of the regulator is to provide transparent information to customers on the components of retail electricity prices. . .

This is very different from the LabourGreen plan which Wolak described as:

“a sham that might make me feel a bit better”, but was the wrong weapon to attack “runaway” retail electricity tariffs, which he says are the real problem in current market arrangements. . .

Wolak says the NZ Power policy, which would unpick a 25-year-old experiment in electricity market design in favour of a centrally planned model, “may not even solve the problem, which is runaway retail prices.” . . .

“It may look good, but it’s got lots of challenges,” said Wolak of the Labour-Greens policy. “You’re throwing the entire baby out just to get rid of the bathwater and you’re going to start over, as if you have all these problems.

“My argument is that some of the changes since 2009 are pushing in the right direction,” said Wolak, whose 2009 report for the commission found evidence of electricity generators wielding market power at different times, to maximise the value of their generation efforts.

From that, officials calculated $4.3 billion of “excess charges”, which then Energy Minister Gerry Brownlee acted on by shaking up the national retail market, which is now more competitive, with high levels of customer churn. . .

However, Wolak believes moving to a cost-based, single buyer model could be a disaster.

“If what they are going to try and do is say ‘we are recovering costs and allowing you a fair return’, then oh my god, it’s just a can of worms that you wouldn’t believe that’s going to get opened,” Wolak said of Labour’s plan to calculate rates at every power station in the country on a cost-plus return basis.

“They are going about it in a kind of bass-ackwards (sic) way and saying ‘we’re going to say what each guy’s price can be in terms of generators selling’. That’s just a nightmare.”

“What’s simplest is to say we’re going to make this thing as competitive as possible.” . . .

The Labour-Greens' 1970s power policy won’t reduce your power bill, but it could cost millions to taxpayers.</p> <p>www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11241830


LabourGreen power policy already costly

October 24, 2013

Meridian shares will list at $1.50 which is at the bottom of the government’s indicative range and some of the blame for that can be laid on the threat of the LabourGreen power policy:

. . . Numerous factors combined to force down the price of Meridian shares. Chief among these were market fears that a Labour-Greens government, if elected next year, will gut electricity company profits to deliver large price cuts; and ongoing uncertainty about the long term future of the Tiwai Point aluminium smelter. . .

The Labour and Green parties have cost the country in opposition.

They’ll cost us all lots more if ever they get into government.


Labour threatening superannuation

September 9, 2013

Kiwiblog points out that if Labour enacts what is an effective minimum wage of $18.40 it will have an impact on superannuation.

The pension is based on 66% of the average wage for a couple. If the average wage goes up, as it will if the ‘living wage’ is introduced then superannuation will too unless Labour changes the way it is calculated.

The party is already proposing to increase the age of eligibility for superannuation because it says it’s not affordable now.

What changes will they have to make to ensure it’s affordable if they keep it based on 66% of the average wage?

Even if, as is inevitable, they have to accept that the ‘living wage’ is unsustainable, one of their other policies will impact on superannuation.

They’re promising tax increases.

The pension is based on the average wage after tax.

When taxes fall, as they have under National, the average after-tax wage increases and so does the pension.

When taxes increase the average after-tax wage will fall. It would be political suicide to cut the pension but if they increase taxes and do nothing else pensions won’t increase or will do so more slowly.

Whichever of the policies you look at, the current rate of superannuation is under threat under a LabourGreen government.


A tax the NZ left hasn’t thought of – yet

August 4, 2013

The LabourGreen answer to almost any economic question is more tax.

However, there is one thing they haven’t thought of taxing – yet – and that’s sunlight.

But it might occur to them because it’s being done in Spain:

The state threatens fines as much as 30 million euros for those who illegally gather sunlight without paying a tax.

The tax is just enough to make sure that homeowners cannot gather and store solar energy cheaper than state-sponsored providers. . .

If you get caught collecting photons of sunlight for your own use, you can be fined as much as 30 million euros.

If you were thinking the best energy option was to buy some solar panels that were down 80% in price, you can forget about it.

“Of all the possible scenarios, this is the worst,” said José Donoso, president of the Spanish Photovoltaic Union (UNEF), which represents 85% of the sector’s activity.

Before the decree it took 12 years to recover the investment in a residential installation of 2.4 kilowatts of power. Following the decree, it will take an additional 23 years according to estimates by UNEF. . .

Huge solar generation panels lined paddocks near Vejer de la Frontera in south west Spain.

It seemed like a very good use of a natural resource when the sun shone all day, every day for the three months we lived there.

We were told there were EU incentives for generation from renewable sources.

It seems ludicrous to take an incentive with one hand and impose a tax disincentive with the other.

But let’s not tell LabourGreen, they might think it’s a good idea.


Lawyers major beneficiaries of Labour policy

July 30, 2013

Labour’s housing policy might win votes from fellow-xenophobes and the economically illiterate desperates who think banning a tiny number of people from purchasing property will make a difference to house prices.

But the only real beneficiaries of the policy will be lawyers:

Labour’s policy to restrict foreigners from purchasing a home will hit Kiwis in the pockets and will line lawyers’ wallets, ACT Leader John Banks said today.

On Radio New Zealand this morning, David Shearer confirmed that Labour’s policy would put the onus on conveyancing lawyers to determine whether those purchasing a home are New Zealand citizens or permanent residents and are buying the home for themselves with their own money

“Housing is already unaffordable without Labour’s added proposition of more red tape and higher lawyers’ fees,” Mr Banks said.

“Under Labour’s policy, when any New Zealander buys a house, a lawyer is going to have to establish whether or not they are a foreigner.

“As there is no list of foreigners handy, every purchaser will have to be questioned by their lawyer and will have to prove their citizenship.

“Labour also expects lawyers to prove that the purchaser will be the beneficiary of the purchase and is not purchasing the home on behalf of someone else. But how would they know? Lawyers only know what they’re told by the purchaser.

“Labour’s dopey ban on foreigners purchasing housing is going to cost every New Zealander through increased legal fees and more red tape.

“It is recent immigrants to New Zealand who will sadly come under the most scrutiny from this policy that is not actually going to do anything to solve the problem of housing affordability.

“Instead of focusing on this kind of dog-whistle claptrap, Labour should be doing something about the real cause of the housing crisis – the lack of land supply for residential development,” Mr Banks said.

The policy will generate more work for lawyers as people seek to circumvent the restrictions by, for example,  setting up companies registered here with resident directors.

One of Labour’s other polices, the capital gains tax, will also provide opportunities for lawyers as people seek to find loopholes.

There will no doubt be other new or increased taxes under a future LabourGreen government.

They too will provide extra work for lawyers from people seeking to minimise their liability just as tax increases under the 1999-2008 Labour governments did.

Labour in its early days aimed to govern for the workers. These days its policy provides a lot more gains for lawyers.


CGT comprehensive or useless

July 26, 2013

I’m not averse to the idea of a capital gains tax if it was comprehensive and matched by a decrease in other taxes.

The LabourGreen proposal for a CGT won’t be balanced by a reduction in other taxes and will exclude the family home which means it will have little or no affect on house prices.

A capital gains tax on property makes little sense unless it also applies to the family home, says Finance Minister Bill English.

Speaking at today’s Mood of the Boardroom event in Auckland, English told the country’s top business leaders the government was maintaining its “clear position” on the capital gains tax debate.

“We’re not supporting the extension of the current capital gains tax,” he said.

“The overseas experts who tell us we need it all say that it should be comprehensive on all capital gains. And if you don’t do the whole thing then it probably doesn’t make much difference.”

The LabourGreen proposal is typical of them – an overall increase in tax for little if any benefit.


Tripe or starvation

July 25, 2013

The majority of National Party supporters would like Prime Minister John Key to work with New Zealand First after the 2014 election, a new poll indicates.

This puts me firmly in the minority.

Then we see the reason behind the response:

Mr Key says National supporters want him to do a U-turn on previous promises and work with Mr Peters, if it means stopping a Labour-Greens government, and a 3 News/Reid research poll backs this up. . .

“I think partly it reflects that the country doesn’t want to see Labour and the Greens in office,” says Mr Key, “and so if it means having to deal with New Zealand First, a lot of our supporters would prefer to see that situation.”

If it makes National supporters prefer Peters the thought of the LabourGreen alternative must make them feel very, very bad.

It would be a bit like preferring tripe and liver to starvation.

 

 


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