By Bernard Hickey
Labour leader David Shearer has warned a Labour government would intervene in the power market to reduce electricity prices, potentially hitting the profits of power companies about to be floated.
Shearer was speaking on the eve of the opening of the Mighty River Power float.
"What we're most concerned about is the rise in power prices and the fact that when these assets are sold the likelihood is that power prices are going to go up and that the companies are going to be increasingly held in foreign hands," Shearer said in a news release.
“Over the past 15 years, the annual average household power bill has gone up by almost NZ$770, even after inflation is taken out. Prices in New Zealand are rising faster than in our major competitor countries," Shearer said.
“I’ve spoken to Kiwis who are scrimping on heating their houses and are afraid to turn their electric blankets on because they simply can’t afford their power bills. That’s just wrong. The pressure on prices will only get worse as this Government sells our power companies to mostly foreign and corporate buyers. Those investors will want to push prices up even more to boost their returns," Shearer said.
"That’s why Labour will take action. We are signalling that the future Labour Government will make changes to the sector so that New Zealanders considering purchasing shares in Mighty River Power, are aware of that before investing," he said.
Shearer said Labour would detail its proposed changes in the "near future", but wanted to signal to potential investors its intentions now so they knew before considering buying the shares.
Key rubbishes Shearer
Prime Minister John Key described Shearer's comments as "rubbish" in an interview on TVNZ's Breakfast.
"What a load of rubbish from David Shearer. Their track record of nine years in government power prices went up 72%. Yes they've gone up under us, but it's been slower. Gerry Brownlee undertook reforms of the energy sector and they've been working a lot better," Key said.
"As is typical of Labour, we don't see one suggestion of how they're going to do it," he said.
Key said he could not give financial advice on buying shares.
"But by definition, technically if power prices went up then company profits would go up, but that doesn't necessarily mean they do or they will. What they're saying is nonsense," he said.
Electricity power prices, as measured by MED (now MBIE), show retail prices have risen between 3% and 10% a year for the last decade.
'We've already paid the mortgage'
Shearer later told Interest.co.nz in a phone interview that Labour feared the Mighty River float and the potential floats of Meridian Energy and Genesis Energy meant the pressure for higher prices would be greater than ever.
"We believe the Bradford reforms haven't worked," he said, referring to the reforms to the electricity market enacted in 1998 by then National minister Max Bradford.
Shearer said power prices should be cheaper, given flat demand and that hydro-electric power stations had already been paid for and should be producing cheap power.
"Demand is flat and yet we see people like Contact (CEO Dennis Barnes) saying power prices will have to increase 5% or more. It doesn't seem to be connected to anything that's real," Shearer said.
See Barnes comments here in an April 2 article in Stuff.
Shearer said power prices in similar countries had been flatter than in New Zealand as power demand had been flat in recent years. He said New Zealanders had already paid for the building of its hydro-electric power stations decades ago and shouldn't still be paying high prices.
"It's like the mortgage we've paid off and we continue to pay," he said.
Shearer said the detail of Labour's proposed reforms would be released "sooner rather than later", but he would not say if it would be released before the Mighty River Power float closes on May 3.
He did not accept Labour had a responsibility to release its reforms to ensure investors were fully informed.
"We don't accept that somehow we have to dance to the government's tune."
See our chart below.
(Updated with PM's reaction, more detail from Shearer, chart)
Electricity prices, Retail
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50 Comments
Great articles Bernard, power and housing are paramount issues and Kiwis are being ripped off in both of them. 'User pays' doctrine has gone amock; it needs prompt curbing!
Take the interest component out of the housing equation and the demand side is taken care off. Prices will drop and lending growth will diminish.
Lenders could charge a flat fee, or perhaps all housing loans could be under the Reserve Bank jurisidction. And power should be sold at cost, plus a reasonable margin for profit which should be retained and used to fund new infrastructure.
After all houses are for people to live in, not for landlords to make a living! Let them get a real job, a productive one, and stop them from being the parasitic elements of society they now are.
As for power, the population's health will benefit tremendously living in dry, warm homes, bringing about robust side effects curtailing expenses in our public health system and promoting a higher standard of living which will bring about higher productivity.
Go Labour, you have my vote!
HGW
I'm pretty sure that Labour couldn't get anymore petty and selfish.
There are hundreds of thousands of Kiwis lined up to buy MRP shares and Labour leader is actively trying to sabotage their potential investments. This is a great opportunity to get Kiwis away from investing in houses and into the stock markets and all Labour can think of is making National look bad for votes.
Lets not forget who was in power in the naughties when we had the biggest housing boom is recent history. Lets not forget who was in power when the finance companies were unregulated and lost billions of dollars of Kiwis money. Lets not forget who was in power when our deficit was blown all out of proportion (and it's National who is only now bringing it under control).
Your ultra far left idiocy is alive and well in North Korea where "nationilse everything" is working out real well for them.
I'm pretty sure that Labour couldn't get anymore petty and selfish.
Ngati Tuwharetoa owns the Taupo lake bed, and is already talking to Mighty River Power about charging for its use.
"They store their water on our lake," says John Bishara, Tuwharetoa Maori Trust chairman.
Tuwharetoa was happy for Mighty River to use the lake free of charge for the public good when it was a state-owned enterprise, but not now it's being sold by the Government.
How else are we to fund the Directors and CEO's of these planned fee and salary increases?! We may as well pay the energy companies what they charge and when they later increase power prices by 5%... withdraw $100 each and hand it to the Chiefs directly. At least by using their prompt payment discounts you can cut out the middle-man and save $10!
As a comparision here in Aus, I am paying very much the same as NZ per unit of power - it varies from 20c to 28C per Kwh. The big BUT is the the line charges, typically 40c/day here in Aus versus $1.60 something when I was in Auckland 2 years ago. So blame the lines companies, they are reaping the benefits
It's the only behaviour of any significance I've seen from him so far Gonzo.....!
Of course, while it's a grand gesture on the behalf of the...people.......you now have to wonder how he's going to woo the Foreign investment we are so hungry for and smooth the worried frown from potential investors who would clearly see this as interventionalist signaling to Corporate profit.
The comment is neutral BTW.....I don't think Shearer really thought this through, either that or he is prepared to renege from the outset.
Both Shearer and Key mqake good points, that many of the comments tend to polarise towards. Key is correct that Labout during it's time in Government did nothing when challenged over power prices, and indeed they were very happy to milk that cow while they could. National on the other hand created this mess when they created the power companies and made them profit focussed, rather than requiring them as state owned entities to supply power at reasonable and affordable prices. i note the comment from the Au based Kiwi who staes that the price are much the same, with the lines charges somewhat higher. The issue is that aussie wages are higher than here, as a % of income the prices here are significantly dearer.
The overview of all the articles is that NZ is a low wage economy and the banks, corporations and Government seem intent to keep it that way. Socialism clearly doesn't work and neither does capitalism, how do we find the middle ground when those in power have to much self interest invested?
here's a Global selection 2012 in U.S. dollars...would be interested to see 2013's
http://www.statista.com/statistics/13020/electricity-prices-in-selected-countries/
Well done, Christov, thanks.
At 23.69c/kwh, or US$0.199 per unit, I am paying close to the Italian level right at the top of the chart. Italy and Germany are not flush with hydro, so the fact they are expensive is no surprise. Our suppliers have no such excuse.
Seems to support everything Shearer is saying, such that I cannot fault a word of it. We are paying way too much, which is arguably just about okay when 90% of the profits go back to the taxpayer as dividends.
So fixing the non market is the right thing to do. Shearer is absolutely correct to advise that Labour will do that before anyone buys any shares. So no share buyer should be under any illusions, and if they have concerns, don't buy the shares. If the market collapses because of that (sadly unlikely as I suspect institutions have already lined up for them), such that the sale is called off, then very good indeed.
Key's comments, that Shearer is taking nonsense, don't make much sense. Where is the nonsense?
That comparison schedule is either a PR spoof or simply a collection of nonsense numbers without regard to the dates or accuracy
The $0.11 cents for Australia is just plain wrong - if they are referring to residential consumer prices - or they might refer to generator prices - the residential retail price has not been $0.11 for many years - at least 5 years - currently $0.21 if you have an old meter - $0.30 for peak use if you have a new smart meter plus $0.11 cents for off peak between 11:00 pm and 7:00 am
It may be true if referring to prices charged to large industrial users
Um in U.S. dollars Iconoclast at the exchange rate of the time , but I agree the Aussie one looks off, I cross referenced a few of the Euro ones and they were about right, any hoo go back and check if it's resdential as I think it was.
I'll have another lookie see...the site is bonafide as a stats collector.
is Ok ...iconoclast ...I find better one...looks a lot more accurate ....
"What a load of rubbish from David Shearer. Their track record of nine years in government power prices went up 72%. Yes they've gone up under us, but it's been slower. Gerry Brownlee undertook reforms of the energy sector and they've been working a lot better," Key said.
Really?
So the immorality of the underlying premise for the electricity and gas price rises is the same now as it was under Labour?
Bertram said that for several years, power companies were revaluing their assets on paper and using that as a basis to increase their prices.
A profitability analysis of Meridian, Genesis and Mighty River conducted by Ernst and Young in 2011 estimated that economic profit totalled $3.8 billion between 2002 and 2011, on total revenues of $42 billion.
Their invested capital rose from $4 billion in 2002 to nearly $12 billion in 2011 but most of this increase - $6.2 billion, according to the companies' annual reports - was asset revaluations, with less than $2 billion representing the historic cost of net actual investment.
Those increases in asset values went untaxed but made their returns on investment look low, which justified price hikes, he said. Genesis did not want to comment on the revaluations and Mighty River said it was a question for the Electricity Authority.
But while consumer prices have soared, industrial power prices have remained stable and commercial prices have dropped.
Bertram said it was because residential customers didn't have the power of big business.
"It's open season to screw anyone who can't fight back."
But he said nothing that was being done was illegal, because companies were free to operate in a way that maximised profits.
"If it's highway robbery, we lock those guys up. But if companies put a gun to your head and take your money, it's knighthoods and bonuses for the CEO." Read article
Good on you there Stephen H.....but I still don't think they had quite thought it through, signaling interventionalist behavior to Corporate profit....makes the bed hard for Investment Capital....the ratings agencies take a dim view of it also.....
I'd have to think on it a mite before I proffered a better plan of attack from Shearer......it does look a bit desperate ....and that is when we all most often make errors of judgement .
Count - of the 3 options I put up on the other thread, yours would the cognitive dissonance, given that comment.
This is energy, a life-blood. It would be nice to think that it might be rendered obsolete, a la NZ Post, by all of us having panels on our roofs, but the energy required to do that en masse, and the material ditto, ain't there.
So we are talking of an existing supply, zero-sum-game. That's not 'capital investment' (the biggest cognitive dissonance of thenm all is assuming that money is real, just because it hithertofore could be underwritten) it's a simple case of some getting more energy at the expense of others.
Survival of the fittest in a non-physical way, perhaps, but not a regime giving greenfields returns....
Go well yourself - it's a stunner down here. Pity I have copy to write and a deadline to meet. The Border Collie is looking reproachfully from under the flax "what, no beach today?"
Nup. tomorrow, though. :)
Now be fair about this PDK...I was pointing toward a tactical error here on the part of Shearer to gain victory at an election...without upseting investment capital potential.
He can intervene all he likes for all I care....but the rhetoric leaves him no outdoor...and that smells of a renege.
I am not advocating allowing the continuance of trough swilling.....to be fair it's a dodgey one to handle...with bomb written all over it.
He's a bad Dad pooch.... they always say tomorrow.
While I agree with your view, well blow the ratings agencies frankly. So they are only happy when they see that capital investment has a state sanctioned monopoly to pillage the less able ie make a big profit. Just why should something that is mission critical to NZ's economy has to be a big payer outer to investors I just dont see myself.
Mr Shearer has signalled that a new Labour Govn would change the system, making it less profitable (if its even possible signifcantly is another matter). He has however just put corporate investors on notice that the votes arent in the statis quo with great timing IMHO. Natonal has continued to fly into the headwind of voter displeasure, building up as a vote loser for them nicely this one.
Going back to the ratings agencies, lets face it they look as corrupt and far right wing politically blinkered as its possible to be over the last 5 years, getting it wrong economically and financially why really should anyone care much about what they say?
Debt sure is a bad thing....maybe one day ppl will learn they have enslaved themselves for trinkets...or maybe not...
regards
Well said Steven...and to hell with the agencies I could not agree more with...
Just tried to point out where Shearer may fall a little short in the thinking while dancing dept......make that mistake in office and you get a one termer with little change.
I doubt Clarke would have announced it at this point........shocking dancer though, a bit like watching a llama on ice.
LOL...yes...
Im really mystified why us voters allow our Govn to be so heavily swayed by those bozos..I really feel like our Govn isnt there for us...
Im not so sure its a bad thing Labour have said they will change it rather than keep mum, bear in mind the possibility from all these free trade agreements that investors could use to sue to recover "losses" from a change of Govn policy. or attempt to sue anyway. Though maybe that avenue is being woken up to, finally.
http://ash.org/no-free-trade-for-cigarettes/
http://www.stuff.co.nz/national/politics/6789833/Key-Free-trade-won-t-s…
http://www.cato.org/publications/free-trade-bulletin/free-trade-tobacco…
regards
I see nothing wrong with SOE's being profit focused as long as its a small profit and not an excessive profit derived from a state sanctioned monopoly which I think we can argue successfully is what the last 2 Govns have done. Reasonable and affordable are of course subjective, ppl may only want to or be able to pay say $0.14 a kwh when in fact it costs $0.17 to produce (say). Just how is the price per kwh derived? if you consider that HC's govn didnt invest for 10 years and National has had to do a catch up in terms of capital, well thats a legit cost speard over the last 5 years when in fact it should have been spread over the last 15years.
I dont agree that there is a desire to keep NZ as a low wage economy, increase in wages brings in more tax income for Govns, more spending, more consumerism the banks etc profit more.
"self interest vested" having read about the rise and fall of the Roman empire and various others I think that finding a middle ground just isnt possible myself. Change will only come about when the collective vested interests are swept away which I think means civilisation also has to go. Take a look at the extremist groups sprining up in the EU and gaining votes as a great example....middle of the road "extermist" groups, well there are none of. Can you show an actual successful example?
regards
1. This does say that there is little risk of accelerating inflation. Indeed, Hobijn and Daly suggest that there’s a “pent-up demand for wage cuts” that will probably push inflation lower even if the economy is recovering.
2. Central banks and other policy makers will be making a terrible mistake if they look at low, stable inflation and pat themselves on the back for a job well done. Low, stable inflation, it turns out, is entirely consistent with catastrophic economic mismanagement.
1. this could be interesting to watch...
2. Im hoping our RB isnt this um dumb....or dogmatic....
http://krugman.blogs.nytimes.com/2013/04/13/missing-deflation/
I find my appliance run smoother on Mercury Electricity. I changed from Meridian and will never look back, The TV works better, the lights seem brighter , the oven appears to heat up faster. I also like the logo on my bill as it is more colourful. I wonder of other readers have had similar experiences they can share.
Well to be fair I am not comparing apples with apples. A solution to a problem I have been stewing on presented itself today. So rather than a fleeting screamer, my solution is enduring so has to trump Plan B. But that in no way lessens the quality or relieves my stomach muscles either :-)
Well that's just one reason not to think the divs will rise above the average...Labour can promise what it thinks will harvest votes...and Key now knows very well his govt will have to keep a tight lid on the divs....or risk being biffed out.
Anything under govt ownership control comes with massive risk of political filth...just look at what Clark and Cullen did to the AIA share value!
A spread of property investments in Auckland a year ago would have brought about a 12% return,...tax free if you know your game...the same is likely to be the case for the next few years because the banks will not let Wheeler out of his box.
Gerry said Auckland will have an extra million by 2040....property has to be better than being shafted by Labour.
"Electricity power prices, as measured by MED (now MBIE), show retail prices have risen between 3% and 10% a year for the last decade."
So tell me.......did he get away with stating that utter load of shite? and is he stating, really stating 10% a year increases is just fine and dandy to most consumers?
We have had TWO commission reports (last decade) into power prices and BOTH have found that electricity is way overpriced. Time we let 'class action lawsuits' become legal
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