Labour will meddle in power market

Labour is planning to follow through on its policy to meddle in the power market if it is in government:

. . . Labour and the Greens unveiled plans to overhaul New Zealand’s electricity market on the eve of the government’s MightyRiverPower selldown last year. The operator of nine hydro stations on the Waikato River has traded below its $2.50 IPO price since just after the sale last May.  Meridian Energy, sold in October, is hovering around its listing price.

The opposition parties want to create a single, state-owned power buyer and a restructured pricing model, to eliminate excessive power company profits and pass savings onto consumers through cheaper electricity prices.

“A wise investor will be aware if the pricing model changes, in this case to stop the profiteering of public rivers, that will change the companies’ profits,” Parker, who would be finance minister in a Labour government, told BusinessDesk.

“Investors are already discounting those stocks because of what might happen if we win,” he said. “It’s actually a good example of how the market works.” . . .

If they can reduce the value of companies and the wealth of investors this much when they’re in opposition, they will do much worse in government.

Investors have already assessed the threat. The New Zealand stock exchange energy group index, which includes all listed power companies along with Z Energy and NZ Refining, has dropped 9.6 percent in the past 12 months, while the NZX 50 Index has rallied about 17 percent.

“Some people just won’t touch them because they are scared of a Labour-Greens government,” said Mark Lister, head of private wealth research at Craigs Investment Partners. “Others say because they’re dirt cheap people are pessimistic. If National got re-elected they’d go up again.”

A potential change of government may pose risks to other sectors as well, he said.

“Regulatory risk is weighing on those sectors which could be in for attention from a Labour government,” Lister said. “The market is aware of the sectors susceptible to regulation – SkyCity, the electricity sector and Chorus have a cloud hanging over them, which will continue to the election.” . . .

If there’s a Labour/Green/New Zealand Firs/Mana and whichever else party after the election that cloud will darken.

2 Responses to Labour will meddle in power market

  1. J Bloggs says:

    If I were a shareholder in a couple of NZ’s power companies, I would LOVE this Labour party policy and hope it’s implemented.

    Because it’s based on one flawed, fundamental assumption – if there is only one buyer, the Powerco’s will HAVE to sell to it.

    If the single buyers price is not sufficiently profitable for the powercos, what does the Labour/Greens think is going to happen? The pwercos will sell to it at a loss? No. they won’t. They’ll start shutting down power plants, to reduce their costs. How long could any government hold out for thier price when the majority of NZ power companies are switching off the national grid. A week? two weeks? A month? You’d be lucky if they lasted 3 days. Once the Government capitulates on pricing once, there will be nothing for the single buyer to do except to capitulate to the Powercos pricing demands every time. Under the current system, if a buyer doesn’t like the price, they can switch to someone cheaper. Under the proposed system, there will be no other option. It’s a licence to print money.

    Like

  2. pdm says:

    HP & 3Bloggs – excellent.

    You reinforce why the country cannot afford another Labour/Green and whoever else government in my lifetime.

    Like

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