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Labour and Greens propose single buyer of power to cut prices by 10% to 14%

Labour and Greens propose single buyer of power to cut prices by 10% to 14%

By Bernard Hickey

The Labour Party and the Green Party have jointly announced they would dismantle New Zealand's electricity markets if they were to win power in 2014.

They said they would create a new Pharmac-style agency called NZ Power that would act as a single buyer of wholesale electricity. They estimated household power prices would drop by 10% to 14% after the reforms, which they said would create 5,000 jobs and boost Gross Domestic Product by NZ$450 million.

They estimated the Crown would lose between NZ$260 million and NZ$365 million in dividends and taxes from power generation companies, while power generators -- both private and public -- would lose revenue of between NZ$500 million to NZ$700 million.

If a Labour/Green government were elected in November 2014 and they implemented the policy as outlined today, it would radically reduce the revenue and profit outlook for all state owned and private power generators and retailers.

The policy now makes any decisions by possible buyers of shares in the currenty state owned Mighty River Power, Genesis Energy and Meridian Energy a political decision rather than purely a financial decision. Buyers now have to assess whether National is elected in 2014 and beyond, or whether a Green/Labour coalition is elected in assessing how profitable their investment will be.

Labour leader David Shearer said the Government would forgo dividends and tax revenues from the power companies. Labour released a paper by consultancy BERL analysing the policy.

Labour and Green leaders David Shearer and Russel Norman stood together in announcing the detailed policy in Parliament. This is their first joint announcement of a major policy plank for a Labour/Green Government, essentially creating the bones of a coalition government in waiting for the first time.

It transforms the political landscape and signals what would be the biggest re-intervention in the New Zealand economy since its deregulation began under Labour in 1984.

'NZers being ripped off'

Labour Leader David Shearer said in announcing the policy to a room of reporters and political observers that power prices were out of control and New Zealanders were being ripped off. 

“I’m not prepared to sit back while power companies cream super-profits at the expense of households and the economy," Shearer said in the speech. See the full copy here.

"National’s asset sales plan will make the problem even worse when overseas and corporate investors push for higher returns on their investment," he said.

"That’s why Labour will intervene in the electricity industry to regulate power prices and protect consumers from the rapid rises of the past while still ensuring a fair rate of return for generators."

Shearer said the annual average household power bill has risen by almost NZ$770 over the past 15 years with prices are rising faster in New Zealand than in many other countries.

“Under our plan, the average household’s power bill will be cut by between NZ$230 and NZ$330 a year," he said, adding this was a cut of more than 10% for residential users, while commercial and industrial users would have their bills but by 5-7% on average.

“We will set-up a single buyer, NZ Power, to purchase all electricity generation at a fair price, based on the actual cost of production. That will mean more than half a billion dollars will be transferred from the coffers of the power companies directly into the back pockets of Kiwis."

Shearer said the net cost of the policy to the government's operating balance would be between NZ$61 million to NZ$88 million, given increased company, GST and income tax from stronger economic growth would generate an extra NZ$120 million to NZ$170 million.

Government reacts

Economic Development Minister Steven Joyce said Labour and the Greens had "jumped the shark with a half-baked Soviet Union-style nationalisation “plan”"

“This is truly wacky and desperate stuff obviously made up in the last minute in the Koru Lounge between comrades Norman and Shearer,” Joyce said.

“Their crazy idea to have both a single national purchaser of electricity and to exempt Government-owned companies from both company tax and dividends would effectively demolish private investment in the electricity industry overnight. It would also raise real questions as to why any individual or company would want to invest in businesses in New Zealand," Joyce said.

“Even the idea of it is economic vandalism of the highest order, with the timing designed to try and disrupt the mixed-ownership company floats. What we are seeing here is a desperate Opposition that is prepared to sacrifice economic development in New Zealand on the altar of political opportunism," he said.

“The sad truth is that Labour has no idea how to operate a competitive market that keeps downward pressure on prices. Labour made a number of reforms to the electricity market in the early 2000s and the result was power prices rising 72 per cent over nine years. This Government’s reforms have halved price increases while maintaining investment in generation and transmission. Labour’s suggestion today is no more than a belated apology for their mismanagement, with a back-to-the-70s solution that would only make things worse."

(Updated with detail/background/analysis, BERL paper, Shearer speech, Government reaction)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Bernard will be updating this after the Labour-Green press conference. In the meantime, here's some more from Shearer. And here's his speech - http://www.labour.org.nz/news/speech-nz-power-leaders-remarks
"I’m just about to announce that under a Government I lead, power prices will come down. I wanted you to be the first to know.
I’m making the announcement together with the Greens because we’re both serious about taking action on this major problem. We agree it’s time to bring down prices.
Power prices have risen twice as fast as inflation over the past 15 years. In fact prices in New Zealand have risen twice as fast than in our major competitor countries. National’s plan to sell our assets will only make it worse.
That needs to change. Today I’m announcing that:

  • Power bills will drop by $230 - $330 a year for the average household.
  • Businesses will also see prices lower by between 5 and 7 per cent on average.
  • Lower power prices will boost the economy and create over 5,000 jobs.
  • We’ll create a new agency called NZ Power to act as a single buyer of wholesale electricity. It will also have the power to keep a lid on prices.

Under this policy power companies will get a fair rate of return, but New Zealanders will finally get a fair go. Lower power prices will give families a break and mean more homes are warm and dry over winter. It will also help our economy grow and create jobs.
I need your help to get out the message. Please forward this email on to 5 of your friends telling them you support this plan.
More information on our plan to bring down prices is available at www.labour.org.nz/nzpower"

Gees John Boy, a little quick off the mark with the Tourism Budget increase there, might be smarter to pour that into the Maori Party to buy some unity, or just have Sharples knobbled whichever is the most cost effective.....
sheesh....They gonna give me my money back for my shares....?

LOL, I'll give you a penny a share....
<grin>
regards

As long as it's old world copper Steven I'll consider it.....there will be daylight.

This dumb idea  will turn around and bite Labour on the arse . They have not thought this through and are locked into the now discredited 1970's communist ideological thinking .
Here why :
1) Most Kiwis will have an indirect interest in the Power companies through their KIWISAVER, and any attempt to destroy value would not be tolerated
2) Then the  400,000 Kiwis who who have expressed interest in acquiring shares  will have a direct interest ( by deduction I assume these will be voters ) and given the average family of four  , then about 1,000,000 million Kiwis will have a direct or family interest in the Companies 
3) Why would Labour want to undermine the  value of something they will own a 51% share . It defies logic 
4) Once Labour have destroyed or reduced the value of the business it then hinders  the company's ability  to raise fresh capital either in debt or equity ( rights offers) to be used for expansion , new development , research ,  new technologies , and even maintentance .

On the other hand, I would see it as an opportunity for Meridian with Transpower upgrades to produce enough profits from its redirected smelter load to fully compensate for any net loss elsewhere.
I would further suggest that this is an inducement for Meridian to tell Rio Tinto to get on their bike.

Hi Boatman
Okay it reduces Kiwisaver perhaps, assumming that these energy companies are good investments long term anyway.  But gives me a lower cost of living when I am trying to live on retirement savings.  A net gain perhaps?
Reduced value of energy companies?  On the other hand reduced electricity prices could have a bigger public benefit if it helps businesses and results in more tax, less unemployment benefit.
A big argument in its favor I think is that it treats electricity as an essential infrastructure service, not a market plaything.

How is this going to happen? they will also have to put price caps on, otherwise the shareholders will dictate to dividend size!

Simple in theory, they legislate that they can set the wholesale price, have a nice day.
Beautiful manoeuvring IMHO....
Of course it may not work out....but on the face of it, its got to be one huge spanner in National's works.  Who exactly will want to pay anything like a premium for shares when the next Govn will decimate the monopoly margins....ouch...
Nicely done IMHO.
very nice.
regards
 
 

I like it - turning the madness bus around and bringing our assets back to the people for whom they were designed to benefit in the first place. .... not shareholders, board members, bankers, pollies and other masters of greed. This is good idea and one that will be slated by those with vested interest .... tick, tick, tick

I would imagine the single wholesale buyer (NZ Power) will avoid the spot market that can easily be rigged by electricity suppliers who justify ever increasing prices by repeatedly revaluing assets that were long ago paid off. The new monopoly buyer will focus on cheaper long term supply contracts.
 
Given Labour/Greens state they are will accept lower dividends from the partially privatised electricity suppliers this seems like a reasonable proposal.

Can this be clarified please - who buys wholesale power on behalf of retail customers under present arrangements? and what is preventing them from focusing on cheaper long term supply contracts?

At the moment, no one. Wholesale trading is done on the spot market and all the companies involved are interested in maximizing their profits, not your savings. Long term, the rising price of power has considerably outstripped inflation. About the only consumer support is the Electricity Authority telling the company raising its prices even more than the other companies in a year that they are being unreasonable.

Thank you, that is a bit clearer now.
 
Seems to me the real problem in all this is consumers themselves - they have a choice, every effort is made to provide them with information and encouragement, and they are still not prepared to make the slightest effort to switch suppliers in search of better prices.  A power companies faced with consumers who were ready willing and able to walk if they could get a better deal from a different power company, would soon find both the incentive and the means to tackle their wholesale buying practices and everything else which contributes to their overall costs.
 
Raising two questions:  how far does the Government have an obligation to help people who could help themselves, but don't do so; and if Government does accept such an obligation, how best to discharge it?
 
Personally I'd answer "not at all" to the first question and stop there.

The electricity suppliers have an oligopoly. Prices are publicized on the spot market and for residential users so the suppliers can just follow each other high prices to get monoploy profits. There is no need for incriminating emails/phone calles etc.This is all carefully explained in our university economics departments  when one studies game theory. The anti competition authorities keep quiet because the return on equity is not excessive. Because revenue hungry governments have allowed electricity suppliers to repeatedly revalue up their assets.
 
Labour/Greens have announced this practice will be stopped.
 
The only way to avoid it is to increase the competition to more than 6 main suppliers. Or be a big/monopoly buyer.

You don't agree that it would make any difference if consumers were more active in chasing lower prices?  If retailers couldn't increase their prices - because they'd lose customers if they did - they'd have to focus on increasing profits (ie prices minus costs) by reducing costs instead?
 
Does the same argument then apply to all markets?  
 
Why would it make a difference if there were more than six suppliers?  and anyway, why are there not more than six suppliers - what is the barrier to market entry that is preventing a new supplier from adopting better buying practices and therefore being able to offer a better deal to consumers?

MdM
Apathy is a considerable driving force .. don't know if it's still operational .. about two years ago I posted a comment about powershop.co.nz which allows you to shop around and take advantage of weekly pricing specials from all retailers .. it operates like a prepaid phone account .. if you are prepared to buy your power in advance you can save a lot of money .. however it never gets any traction .. people don't seem interested .. you need to be in a smart meter area and have a computer .. the savings are (were) pretty big and you dont have to lock into any one retailer .. you can buy a week or 2 weeks or a month at a time .. you buy the kw/h you need

And PowerShop is not available everywhere in the country, so even less options for some of us.
 

Ms de M not all markets have perfect competition. Check out how Opec, Saudi Arabia and the oil shocks of the 70s. Think how some of our electricity suppliers have that sort of market power in New Zealand. It is not possible to enter the market and build another set of Clutha dams or Central Plateu geothermal generators. Do some research on game theory, oligopolies and collusion.
 
 

The 70's oil shock was masterminded by  large banking interests and the Oil companines.

AndrewJ: That statement is plain wrong. You are re-writing history. The 1970's was the rise of Opec. Read Anthony Sampsons book "The Seven Sisters". The Oil companies lost their power in the late 1940's

Yes but Sheik Zaki Yamani, disagreed.  He believed it was conspired by the big banks and Oil companies.
Al Jarzerra have a doco on the Seven Sisters.
 
http://www.aljazeera.com/programmes/specialseries/2013/04/201344105231487582.html

It was political. My memory has faded but it was the Saudis who finally turned the taps off because of a conflict between the Saudis and Henry Kissinger, an issue that had simmered ever since the 1945 meeting between Roosevelt and King Ibn Saud and bubbled up again in the 1950's when the americans shafted the Saudis for the second time. Kissinger was the 3rd betrayal. And that was the birth of OPEC.

The USA forced all oil to be traded in US$, then they washed all the money via the big USA banks, they then lent that money into the third world and created the debt Crisis, which the banks did very nicely out of thanks to the IMF acting as enforcer.

That might be so. However, the first of the 1970's oil shocks was a result of the Saudis turning the taps off over the repeated failures of the USA to fulfill it's 1945 promise by Roosevelt to Ibn Saud to curtail the Israelis, and the 1967 war capped it off.

Maybe, but the Banks and Oil companies did very well out of it, and continue to do so.
 The inflation caused by the energy shock justified high interest rates the banks were on a win, win.

"not all markets have perfect competition" - On the contrary - no market has perfect competition. 
 
I completely agree that (a) in theory a perfect central planner will deliver results that are just as good as a perfect competitive market and (b) in practice you don't have to look far to find examples of market imperfection. 
 
But the important point here is that you do have to look far, and you still won't succeed, to find examples of successful central planning.
 
In this particular case, I think discussion has got confused as to which competitive imperfection is under debate.  
 
I agree that market entry is difficult and expensive on the generation side, particularly in a physically small and dispersed market, but I was not asking about the generating part of the supply chain - I was asking why the entities that buy wholesale and sell retail don't seek to reduce their costs by buying under long-term contracts instead of on the spot market.
 
Even if they don't face any pressure to keep their retail prices down - because of end-consumer apathy - why would they not still want to improve their profitability - the gap between the costs they pay and the prices they charge - by reducing the cost of buying wholesale?   And what is preventing new entities from setting up in this part of the market?

There are a couple of things stopping it. The one that can actually be addressed is that existing players have the option to drop costs to kill off new entrants (generally in the form of special limited deals) then make the money back. Something along these lines has happened a few times in NZ electricity history in regional battles, but in theory if the new entrant had deep enough pockets they could ride it out.
The real problem is that the generators are a tidy oligarcy that know all one another's costs and suistanable pricing levels (this doesn't change much in electrical generation) so have the market carved up and make far more money on the spot market than they would from long term contracts. To create long term contracts you need both parties to enter into the relationship, and with a choice of customers the generators will sell to the high profit spot market. The only major exception to this has been the Manapouri/ Tiwai point, but the wires there were laid with nowhere else to go to so as a dominant customer Tiawi Point has had a lot of control over the price. This proposal is that idea writ large.

Thank you again, that is both informative and helpful.  
 
It remains my view that the ultimate problem here is consumer apathy.  If active and engaged consumers were putting real pressure on retailers then retailers would find ways to put real pressure on generators; as it is, they don't need to. 
 
It also remains my view that Government has no obligation to help people who don't help themselves despite being given the means and every encouragement to do so.  Some would go further and say that the Government is actively wrong to try to help such people - by doing so it encourages apathy and constrains the development of self-reliance and personal responsibility.

Look as far as Pharmac. And this isn't central planning anyway.  

This is what you must expect given there was never really a market and it has all just been a jackup where NZers and businesses have had to pay through the nose for their power.  Until now there was very little we could do about these big enterprises just raising the price.  The country has not been run in the interests of the inhabitants.
Looney as I regard Labour is.  This sort of response is expected in response to the rorts we experience.

Jack up is right, KH.
Easy as since the Max Bradford restructuring of the electricity market: jack up the price - your assets are worth more - "oh look" we will have to raise prices to give an adequate rate of return. Rinse and repeat so we now have some of the most expensive electricity in the world, most of it generated by hydro built and paid for decades ago. 
Good on Shearer for wanting to break up this disgusting scam.

Because it was paid for decades ago, its value should not be taken into account in the expected rate of return?
 
Suppose you own a Van Gogh painting worth millions on the art market.  You inherited it from an ancestor who paid three groats for it in Belgium 120 years ago.  
 
Why then are you unwilling to sell it to me for $5?  After all, that's a clear profit for you, isn't it?

Absolutely, if there was a market that the price can be tested on then it is absolutely fair to get what anyone is prepared to pay, and there is a market for Van Goghs.
However, part of the problem with the currently broken (at least from the perspective of customers) power market is that the generators, without testing the price by putting their power generation facilities on the block, have been able to say 'We think our asset was undervalued in the past so are revaluing it, and to prove it even our "competitors" agree' (who are raising their own asset prices). Then they have said "we are getting less return on the value of our assets than other comparable countries" and used that to raise prices. The revaluation issue is not that they cannot sell their assets for whatever the market will bear, it is that there is not (and will never be) an active market in power generation facilities.

It is similar to that which I warned about...and the reason I will not buy shares in a company controlled by govt.
Key et al ought to realise memories of Clark have faded...Shearer can smell a winner.
That is not to say Shearer would honour his promise...it's so much horse shite from him and the pinky greens.

Greeny greens wooly...it's greeny greens...Russell already insulted the Pinko's and so he's out...no pink ,no red,no shark fin soup n birdnest dumpling for him .....
 And Shearer's ace in the hole is always the GST card.....n don't you fergit it.

If you think he is stupid enough to return to that crazy idea of removing gst from some stuff and raising it on everything else....you would be right.
Norman is a flimflam merchant...he will promise whatever it takes to run your life for you the right and proper way which is his way because he knows best....doh

Sorry wooly , you read that wrong.....Shearer would need give guarantee of no GST increase for two terms along with the  proposal......or as I said there's the out door for him on his promise...
I'm saying he would increase to cover losses.....but he won;t mention it ...now.

This year  I and all other electricity users in the area received automatic a dividend from AECT (Auckland Energy Consumer Trust)  of $ 320.--.
So what happens to this dividend if,  as Mr.Shearer promises,  the power bill will be reduced by $ 230,- to 330,- ?
I remember I also received a similar amount from Northpower when I lived up Northland.
In light of this facts, the promise of Mr. Shearer is not really what it appears to be, because I assume the electricity user would not get the $ 320,- we get at present already   AND the savings Mr. Shearer is promising.
Or did I miss something? 
To clarify: One gets this annual dividend WITHOUT owning shares in the powercompany, just because being an electricity user in the area,the AECT  Trust regulation applies, so it is more or less publicly owned already.

Gertraud,
The following link explains the AECT dividend fairly well.
http://www.aect.co.nz/faq/dividend-faqs
Aucklanders it seems are the majority shareholder in Vector, the main lines owner/supplier in Auckland, and this rebate is paid out of the dividends Vector pays its shareholder, AECT.
My understanding of the Labour Greens proposal is that it will focus on encouraging more competition in generating and retail; while also limiting the returns on capital in those parts of the chain.
So while you couldn't guarantee that Vector won't be affected, it's not obvious to me that it would be.

StephenL:
thanks for the information and clarification. 
Still I cannot assume the proposal of Labour/Greens would not affect the existing situation of customers in the AECT area. If it would not cause any changes, it  would be a godsend for single pensioners, i.e. small consumers with a monthly powerbill of $ 70,- to 120,- getting at present a dividend of around $ 300,-. If the rest of power consumtion is coming down 10 - 15 % it would mean, those consumers would have really very low powerbills!
 
 

Gertraud,
May not have explained myself well. I don't expect the AECT dividend to change as a result of the Labour Greens proposal. I would expect the amount charged per kwh to come down by 10-15%. At ~23c per kwh now, I have seen some reports that suggest we have among the highest cost electricity in the world, so some may not define the new bills as very low, but they should be lower than they are now.

Vector has no revenue related to power prices
other than the volume sold through the retailers within its line coverage..
I understand it does sell gas? There may be a spin off from gas and electricity links through other retailers.

This would be very good particularly for lower income workers who would be pleased with lower electricity prices.  I guess the people that would not be so please would be the shareholders of electricity companies like Mighty River Power as their profits would fall with cheaper consumer costs and lower share price valuations.

More made up dreams by David hand out shearer and Russel Norman Gunston.

NG - exactly.  Most people will surely see through this carrot and not take a bite.
 
 
 
 
 
 
 

I suppose I'm more concerned about when Labour will announce the GST increase.... in a Cullen'esk manner...... Oh , did I not mention that...?

Just like how John Key promised no gst increase, and we got one anyhow?

And what is a fair rate of return as calculated now.  Take your hydro power station constructed and paid for in the late 1930s. Minimal running and maintainance cost.   Look in the phone book for a number.  Double it.  Multiply by 3 and square the result.  Figure out what 8% of that is.  And that is what you deserve for supplying the power.
The next year boost it up a big bit.
What a pack of suckers we were who allowed that rubbish to happen.
  

It's clever.
 
most folk are shallow enough to vote for a reduced power-bill, and those folk will always outnumber the shareholders.
 
Neat.
 
It's not as good as owning energy as a commons, but it sure as hell hobbles those who are comfortable taking advantage of others within a zero-sum game - so the target is correct.
 
The big Question is the Telecom/Post one: will alternatives dilute the importance of the infrastructure over time, or will reduction of fossil-fuel availability up the value/desirability of any energy source?

Clever..? PDK , how clever is it...? could you stick a tale on it and call it a weasel.....clever..?
It's big enough , given John Boy's agenda , to force an early election.......Privatisation is under direct threat here of being hobbled at the gate.
 For Key , not a career Politician , but a man representing others with an agenda to privatise,
this is a moment of critical mass.....it cannot go unchallenged....he will consider  his options , but his gut will say snap election...I need the mandate.

Hmm, oh I think its clever, its a serious shot across JK's bows.  "it cannot go unchallenged" as much as anything is, yes. I cant see right now what JK can reply with.  Interesting point of view (snap election)...its a gamble, I dont think JK would myself, he'll carry on regardless.
Im not so sure on his agenda to privitise more an agenda to keep the offshore ratings agencies and financiers happy to keep lending to NZ at sane rates so National gets a third term.
regards

Election !  Interesting thought Christov.  I must say my right arm would turn paralysed before it let me tick a box that said Labour.   But the National Party really don't impress in any way. 

Spot on KH....and Key's people right now will be evaluating the chances of the swing vote turning out at short notice....you can bet on it.
 It would be a bigger gamble for Labour to go to the polls now as levels of disatisfaction are not at peak yet.....the Nats will figure this out ...and quickly.....
 Better to have a good shot at it than watch your mandate erode before your eyes with waves of Bribery.

Christov this Labour/ Green plan is the opposite of usual left wing bribery. Their plan means less government revenue and more money back in the electricity users pocket (which is bascially everybody). In a way it is like promising a tax cut. Isn't that the usual right wing bribe?

Yes Hi Brendon, I qualified the statement with the possibility of a GST increase going unmentioned , which would effectively make this a vote catcher or incentive vote swinger...call it as you like but yes it is a bribe, but perhaps one that appears noble in intent.
as to right or left or centre ...Brendon they all do it because intelligent debate does not win the masses vote ....bribery does.....at least, if history is observed. 

Its more a change of market rules, some minor app development. Oh and probably a china wall between r an g ops for the gentailer.

Tariffs can be all sorts. Say we all buy a core block of low price, then pay/get marginal price on the bit extra we do or do not use. As most of our power is hydro we don't have long laggs to start or stop fuel fired generation...

In the us often your power bill has a charge based on what you used last year..

But we have only been thinking about it since lunchtime...

I might add I would expect Key to respond to this with emphasis on CGT intentions by Labour/ Greens to put the swing voter in two minds should they turn out for a "snap"
If it became a reality....low turnout...Labour gone...Big turnout....Nats gone by lunchtime......that's the punt, but given events of the day...Key has to ,at very least consider the percentages.

Updated with BERL analysis and more background/detail
http://www.interest.co.nz/sites/default/files/BERL Economic impacts of electricity prices.pdf
 
cheers
Bernard

I will tell you something that amuses me no end....In Key's agenda to privatise, many of the excess politicians in Parliment are going to legislate themselves ..right out of a job.
 And that can't be all bad.
 Because Notaneco,....they never saw the one among them coming...ha ha.

It aint over till the fat lady sings Christov.
Labour and the Greens will somehow have to find money to fund Govt debt and when they disclose how they intend to do that - I'm pretty sure that any talk of electricity prices will soon be forgotten. 
 
It's about time Labour and Greens started eating their toxic carrots. 
 
 
 

Way I figger it, it runs along like this:
 

  • Price caps slammed on all powerco's
  • Power and transmisson capex goes offline for a decade
  • BUT the Tiwai smelter goes belly-up at roughly the same time as the Lab/Watermelon ticket gets some traction (say, 2016-7)
  • Releasing 15% more generation
  • And thus offsetting the lack of capex in the rest of the network
  • So the can is duly kicked into the weeds for 10-15 years, until some real capex is needed once more, as everything has reached capacity
  • But at that point, we've reached the end of any reasonable planning horizon - the world will have changed yet again.  So all bets are off.

Common taters - would this actually all play out?

Good figuring waymad..don't forget the trend to lower power demand due to tech advances(led).
The hydro 15% gain means savings on thermal production costs.
Capex dead in the water but for new advances in transmission tech.
The big bad one is voter fury at discovering fat divs to SOE share owners, especially the divs that will leave NZ for good.
 

FYI updated with more from Shearer's speech
 

Will ernie and bert be instructing govt  owned soe's like acc etc not to invest in mrp and how do they plan to win over the 400k of people who showed interest in the float?

Setting up systems that stop big finance from rorting the rest of us, should not only come from the left wing.     I consider myself to have a right wing view, but I don't see anything right wing in the plan were individuals and business pay more each year for the power than the whole cost of the station construction all those years ago.
Look at those small hydos down the Waikato.  Built in the 30s, 40s, and 50s.   Paid for then.  Very minor running and maintainance costs.  Even with an allowance for future capital expenditure, electric power should only be a fraction of what we now pay for it. 
 

I'm a right wing supporter and my first reaction to this was negative because state take-overs of major assets are usually a bad idea.  This might be a good idea, cheaper power for all would be good.  Labour is certainly taking the punt that thier supporters arn't the ones buying into MRP.  One big negative is that the MRP float will not clear as much debt as hoped. 
 
Is Labour going to build more power stations as and when we need them?  With no one on earth interested in investing in the NZ power industry they'll have to find the cash from the good ol tax payers. 
 
The most concerning thing here is the dramatic shift left of centre for Labour, what's next on the slab for take-over by the state?

Happy123 - I/m guessing you're old. Left and Right are dated terms now. As they apply from here on, it's a bit like seeing whether the Steerage passengers or First Class get into the lifeboats.
 
But the bigger game is afoot now; limits to growth, limits to energy-supply, inadequate addressing of pollution (including CO2), depletion, degradation, population. 
 
There will be no more major generators built. Why is it that so many folk look backwards, then project forwards ?  No guarantees of what happened in the past, continuing forever. If that was the case, none of us would die. Or be born. Amazes me how small a picture some see.

The terms left and right and just fine, I get the impression that you don't like being labelled ulra far-left because that bring connotations of communism and the massive failure that it was. In one word it reminds you of how utterly your theories have failed in the past. 
 
You seem to be implying that Labour/Greens proposal to nationalise the energy industry is something greater than just a vote grabber.  Your also implying that Labour Greens will address "depletion, degradation, population", etc; these parties can't even win an election let alone solve the worlds problems. 

h123 - you need to be able to read properly.
 
Where do I associate the Lab/Green thing with the world's problems?
 
They aren't doing so - and it is neither a right nor a left issue, it's a physics one. You really are tangled up, aren't you? I'm even surer you are old, what a certain generation wqas brainwashed as 'communism', was totalitarianism, pure and simple. Ultimately, it collapsed in depletion and degradation - a physical-environment issue.
 
It all comes down to realities and science.
 
The rest is just various manifestations of 'survival of the fittest'.

Yes, it's a physics issue.  So why and how do you expect politicians to address it?
 
Physics is what will address the issue, and economics is what will incentivise physicists to do so.  Politics can help that only by staying as far away from interfering in either as is possible.

WTF -- nationalise the energy industry?  But isn't most of the electricity generation public owned.  And what is happening is that National is trying to de-nationalise it in some  act of looting of the public purse?

... what's next on the slab for take-over by the state?
Auckland International Airport, another monopoly which was paid for years ago by NZ'rs and now thinks it's ok to rip people off.

We think the generators, or gentailers have bought this upon themselves. The wholesale market is one in name only.

For eg. The network shows load demand and generation is offered in to meet the vol. There is no check on price. The last generation in sets the price all generation gets.

You can imagine the games to be had...

The user has no vis as to what their load means price-wise. Maybe months later we get $ cost and within band smoothed or deemed load vol.

What did they expect, this is no way to run a ballroom.

Instead of creating a national buyer why not just nationalise the generation and retail into a not for profit for the benefit of all consumers?  At the same time and leading by example the consumption side needs to be addressed educating and encouraging reduced consumption by all consumers whether they be commercial or residential.

Plan:
 
The growth of NON renewable Electricity generation is capped to a fixed % p.a. (not too harsh and also depends on number of customers served). Non-Renewable energy can be added but it will be Penalised heavilly above the % allowed.
 
The "supplier" HAS to provide the end customer with the power they need.

End Customers can still move to another supplier to encourage competiton.

 
Penalties will start to bite after a certain amount of time... and the "cheapest" option is for the generators to build more renewable generation OR hand out free light bulbs, insulation etc.
 
Would involve re-orgaising the electricity sector again!
 
The distribution network is Natiolised and is handed totally seperately.
 
BUT; Why Not?

Well this dumb-arse idea should keep them out of power for the next 10 years .
This is evidence of these clueless left wing socialists total inability to run a modern commercial enterprise . Its this type of 1970's socialism that crippled Britain , sort of nationalisation by stealth
The plan to take $700million  from power generator Companies is even dumber , they will have no cash for operations or maintenance AND no capital  for investment in new technology or plant. 

Who paid for these "modern commercial enterprises ." over decades? The profit they currently make comes from whom?
Who paid for and created the national grid? A private company?..........nah
Who paid for the southern lakes developments? 
Time clowns like you actually owned up to who actually built this country. It wasn't PRIVATE companies thats for sure.
Collective citizen ownership, National strategic interests, National infrastructure, National resources ..........mean nothing to traitors like you!
Only a complete bunch of greedy little morons would try this scam of disenfranchisment. 
 
 

pity that it was dumb arse socialism that developed the assets in the first place.
 
 

Lets no forget that we in NZ already have more electrical generation capacity than demand for electricity .
The supply or (potential supply ) exceeding demand scenario currently in place and unlikely to change anytime soon , actually keeps prices in check already .
The Greens/ Labour plan wont fly ... simple .
When they find themselves unable to manage costs , and the increases come through , they will fudge the figures by " adjusting for inflation"  which is just another euphanism for " we cocked up our predictions" 

It is an interesting idea and such a good one that there is no need to stop at Electricity. Any item with a limited number of wholesale suppliers would be a candidate for this.
Petrol and Diesel
Building supplies
Milk and dairy products
Radiology Sevices
Cars
Road Transport
Telecommunications and Broadband
Beer
 
Probably lots of others you could make a case for.
 
All wholesalers would sell everything to the Government at a price determined by the Government who would then supply retailers with a capped retail price. Prices could be legislated down and inflation made illegal.
No reason for this to not end well.

Pharmac already operates on this principle. Don't see too many people in NZ complaining about paying $5 for pharmaceuticals which residents in other countries pay hundreds for.

However Pharmac works on cutting huge margins down to something not so obscene...and then the Govn sibsidises a lot of it.
Most of the goods mentioned have little margin (in comparison) in them...
However its an interesting idea, take cars, the Govn says I'll buy 100,000 cars of this spec, whats the best price en mass...of course Govn has a huge problem with ever being efficient....someone would have to pay the bloated costs of govn getting in the way.
regards

Brilliant idea and brilliant politics.  Well done Labour and Greens.  Extend it to other items as suggested above.

It was reported in Parliament today that since the National led Bradford reforms in 1993 the consumer price of electricity in New Zealand has gone up by 70% more than the rate of inflation. So even if some of this has been used to pay for new generation and transmission, the simple evidence suggest that the price market has not worked at all well. 
Arguably while the super profits generated nearly all returned to the Sate as dividends, this non market didn't matter so much. Now most of the power companies are about to be partially sold, it clearly matters a lot more.
Even with a 10-14% reduction in prices as mooted by Labour Greens, there should be plenty of margin to complete more generation and transmission if necessary. A simple but more or less guaranteed return on capital also should guarantee more capacity to be built. If anything, the government may need to put some limits on that, or perversely companies might be incentivised to over invest.

This strikes me as a very, very clever maneuver to get around some of the foreign investor issues (particularly if the TPP is in place by then). They won't be able to do much directly with the generators, who will be obliged to maximize profits or the government will be taken tointernational  arbitration, but by forming a Pharmac style single customer they shift the balance of power radically in favor of the consumer.
I've be thinking about this through the afternoon, and while the devil may be in the detail, from what it looks like so far it seems a really clever idea.

well , well.
 
They should have rounded out the policy by additionally regulating for a one-for-one retail price for feed in to the network. 
 
 
 

yah.
 
Got to say that I have spent some serious time investigating solar and wind options due to th continual increment in power prices WELL OVER THE CPI figures.  Just cannot buy as many power tools as steven due to those power and food price increases.

I think the general opinion is that this announcement will kill off any possiblity of capex in generation, transmission, and new technology in the entire industry for quite some time.
 
So, in a nationalised industry (with all the inefficiencies taken for granted as perks for the boyz), and saddled with the usual jam-jar accounting beloved of Gummints, where is Da Munny gonna come from when anything non-maintenance needs to be done?  Because, taken to the ultimate, it'll need an appropriation from Parliament....
 

  • Retained Earnings?   Ha, pull the other one, in a Nationalised system of accounting, that goes back into the Consol Fund at 30 June.
  • New Debt?  After this leetle stunt, who in the wide world is gonna Buy it?
  • Cross-subsidisation from other Crown munny silos?  Well, yes, how do we think pensioners and other beneficiaries get their dosh now?
  • Increased general taxation - but of course.
  • Cyprus'ing the feelthy reech?  Well, cannae rule That out - there will be plenty of form for this by the time the pollies are desperate enough to need it.

 
Is any of this slightly - how can we delicately term this - fugly?

I don't see how this proposal would stop investment in new generation where it is needed.  The wholesale price will be based on the average price of power, so will inlcude a mix of low cost (e.g. hydro where capital costs have been paid) and high cost power (e.g. new generation, probably remewable).
And the price is set up to cover costs which can (and will) include contingency funds.

At the time of the Bradford reforms DOug Kid said "the problem with the NZ power generation model is that it works in practice, not in theory".  I think he was right - the current approach reflects ideology, not a concern for the best interests of New Zealanders. Selling off the SoE's is inimical to those interests and so I would welcome any move that would stop Key and Co.'s plans in their tracks.
 

Meanwhile in "real" New Zealand...
http://www.stuff.co.nz/national/8567572/Kiwis-shivering-in-damp-and-cram...
New Zealand has steadily become a less developed nation as a result of deregulation and increased privatisation. No facts behind my comment just an observation.
Perhaps 20 years ago we didn't care about such things.. regardless of which party you vote for there has to be some social conscience from either government in addressing issues such as these.
Then again some folk would just think: " who cares about Maoris, Pasific Islanders and solo mums on the dpb with sick kids living in poverty?" as long as I can make a buck out of some MRP shares "she'll be right mate!"
 
 
 
 
 

On what basis have you made the judgement..

Refer www.virtualcoworker.com

Dobrydan - NZ has large numbers of crappy houses and that cannot be argued against.
Those crappy houses are selling for a premium and that is the problem.  Get rid of the drivers that are keeping the premium up.
I think it is unwise to confuse social conscience having to be in the form of long-term  financial handouts. Have handouts worked? If they had people would not be where they are now.
 
If we want people to improve their lot in life we have to get them to go beyond the limitations they have set for themselves.  We are relying on public servants who are themselves reliant on the Government, to provide assistance to the most vulnerable people in society and it simply doesn't work.
 
Wouldn't NZ be a better place if we had more self-reliant and resilient people?
Life is tough enough captaining your own ship without having to repetitively sail around the bureaucratic minefield of the State.  Those that are reliant on the State will never achieve their full potential.
 
Labour and the Greens are creating illusions. Firstly they are promising cheaper power. What they have not mentioned is that in providing that cheaper power they will have to find other sources of revenue to cover other government costs. For example they might put GST up or bring in CGT, both would have a direct affect on the people who can least afford it.
 
 
 

The only way to drop the NZ dollar.
Is the threat of a return to Muldoon style price fixing etc combined with a left wing Chavez style populism.
With the resultant  loss of confidence in the markets and NZ in general
Would Labour/Greens set all sorts of prices, they sure would, so the entire sharemarket will fall, destroying the much vaunted Kiwisaver savings.
Inflation will rise and interest rates will follow, really benefiting us all??.
How much will their threats raise the price of fuel ( due to a mass flight from the Kiwi dollar) and thus all goods??

 

Japan's trade deficit quadrupled in March, figures showed Thursday, as the weakening yen made fuel imports much more costly, even as it helped the country's once-squeezed exporters.
 
http://www.telegraph.co.uk/finance/economics/10002450/Japans-trade-deficit-quadruples.html

I think it's Such a good idea that it should be applied to the three main areas of absolute human need:  food, shelter and transport (security, the fourth, being already largley nationalised:  turf neatly divided between Police, Bloods and Crips).
 
Imagine a Food Buying and Distribution model. 

  • Guaranteed fair prices for consumers,
  • adequate prices paid to growers,
  • stocks on shelves most of the time, most places,
  • varied food prices depending on your personal circumstances (stripped off Paymark card swipes, data-mined by a caring Gummint, run through a pattern-matching model, and prices adjusted at the counter as the goods are scanned),
  • guaranteed Good Fer Ya (the Green stamp of Food Approval will of course be mandatory),
  • guaranteed GE-free (so sorry, diabetics, yer insulin is Off the menu),
  • guaranteed safe to eat (MRE's keep for decades, y'know),
  • guaranteed locally grown (because the Gummint runs the transport sector too, and you need to keep supply lines short out of necessity),
  • guaranteed  - oh - you should have gotten the picture by now.

 
What's not to like???
 
Imagine the pitch for Housing - Instant Affordability!
 
The pitch for Transport - No Mo' 50-tonne Gaia abusers roaming the potholed Highways of Godzone!
 
And, more to the point, if NZpower gets the bit between its teeth and the model spreads,
 
What's to Stop This?????

It's been done before, Google the word "Communism" and you'll get the whole story. 

has anyone considered the (overdue) 8+ alpine fault ("will be felt in Sydney") great quake on south island dams?

Similar magnitude to Gerry B's next latrine visit JH....one can only hope he takes it in Blighty before  his departure.

First sensible utterance coming out from Labour and Green in decades.  Bring on the Pharmac model to sourcing.  It should extend to all the basic necessities - like grocery pricing as well.  Singapore has a government agent that do sourcing of food supply and it does wonder to the price of their groceries.  You can buy a range of NZ items cheaper in Singapore than in NZ supermarket.
If Labour and Green can crack the supermarket rip-off pricing here I will vote them in the next election.
Telecommunication pricing should be next.  Prices have not come down since the Commerce Commission lowered the interconnect price.

Isn't Singapore a dictatorship...

No a democracy that has grown from a benevolent dicatorship. Interestingly the opposition is increasing its influence significantly, recently.

National is right to be getting rid of 49% of these assets . In the next decade FUEL CELLS may become  a widely used source of energy for households  and the old power companies will lose their monolpolistic position 

True statement there Boatman. Now think it through. Who will be the bunnies?

I'll have to remember not to make any jokes on this site again. Just to clarify, I was not serious about any of this being a good idea. Its called irony and left wingers have proved again its not something they understand.

Waripori - geez you just had some of the other side all excited that they could have their cake and eat it too. The nostrils were flaring, their taste buds salivating and their eyes engaged upon the gorging they could undertake. And then you told them you weren't serious - please pass them the kleenex.

'Other side'?
 
None of the 'sides' are within a bull's roar of addressing the real issue, neither have anything to snigger about. Just suggests the limited cranial capacity of the sniggerer.
 
The real issue is the descending EROEI of each sequential generator - which until now has roughly translated into 'more expensive'.
 
At some point on the descent, the EROEI couldn't support the fiscal expectation (the BoJ doubling the amount of cash in the system, increases the energy in the system not one jot - not one more thing for sale. Perhaps it undermines faith in the value of savings, and forces the early trading of them for 'stuff', but it needs energy to produce the stuff).
 
At a certain point - and all sources of energy are on the table vis-a-vis each other - the lowering EROEI ceases to underwrite BAU. We are bumping our way across that plateau - a far more important point that scoring silly little points on an increasingly sloping deck.
 
But - given the current ignorance in which the general pupulace is held - the Labour-Green move was politically-astute. Should have been anticipated by anyone smart in the Govt camp.
 
 

I wonder how Mr Shearer is REALLY feeling now in the aftermath of yesterdays announcement.
I would say not that great, but hey, what would you expect?
I mean really - would you vote for these guys on a weak promise of 25 bucks a month power savings?

I have never been a socialist, and must admit I don't like the wealthy capitalists demanding ever larger profits based on a clearly flawed economic model, so this move has very strong appeal. National argue that Labour doesn't understand the competitive market, well clearly they don't either because this so called "competitive market" has never delivered the promised benefits they said it would when they created the power industries.
They have to remember that NZ is a very small market, and for industries like these, for the entire country to truly benefit, then they need to be tightly controlled. Perhaps nationalisation is the best answer to provide the outcomes required. The problem I can see with that though is Governments will direct the costs of power to consumers to ensure the profits will pad their coffers, at the expense of the ordinary people. Perhaps and indepent power organisation will work, defining the reasonable cost of the power will be an intersting debate I think.......

Oh, lummy, there's a significant core of common taters who appear to believe that nationalising Electricity, Housing, and , FFS, Food are Good Thangs.
 
P'rpas I better re-invent my career as a Gummint Bureaucrat - been there, done that, and it's great munny for sweet FA actual effort compared to the Private Sector, where the necessity to make next month's payroll hovers constantly.
 
Please kindly direct me to the Queue for such choice jobs as:

  • Electricity Demand Plannerator, 
  • Comestibles (spreads excluding Vegemite) Shelf Placement Regulator,
  • Food Grower Productivity Incentiviser (must supply own Taser),
  • Commissioner - Equality of Power Prices for Differently Abled (Northern Region)
  • Road Transport (Human-powered Freight Vehicles Division) Service Planner

 
Retirement at 55, a guaranteed pension, and all the kilowatts yer can eat.
 
Wheee!

Waymad.  Nationalising is not the answer true.
But we do need an end to protectionism.  Interisland ferry stewards held the whole country to ransome in the 60s and 70s.  And eventually were sorted. 
The protectionism offered to big business currently is worse.  Electricty has rorted us massively for many years.  Supermarkets.  Building supplies.  Petrol.  The list is long.
To be able to buy nails (for examples) at equivalent prices to say Australia and Queensland we need a right wing government who will allow free and vigourous markets.  And not offer protectionism to big business as they do now.

I had thought that Labour/ Greens would probably win the next election because voters generally dont think there is much real difference between the parties and they just get sick of one eventually and swap it for the other. National had got by with John Key"s aw shucks approach but it seems to be wearing a bit thin.
I now think David Chavez has made a big mistake.In exchange for stuffing up the MRP float and scoring a short term political gain he has dragged the party miles to the left. He will have frightened the horses significantly and handed the middle ground to the Nats. He looks irresponsible and untrustworthy and National can now accuse him of planning all sorts of dopy stuff.
Labour and the Greens could be left scrapping over Scarfies vote  while the National fund raising team has been given a solid sales pitch when they call around the corporate donors.

You wish.

Exactly Waripori.
60s and 70s Labour got big union bucks for protection of union interests.
2015.  National gets big company bucks for maintaining monopolies and suppressing markets and competition.

I think Shearer is brilliant!  we have been paying too much for power for too long!
Also I have been thinking how high my phone bills are and my mobile charges are among the highest in the world.  How about looking at telecoms next David? 
Not to mention my broadband bill is ridiculas.  how about together we buy bandwidth into a central agency that allocates total usage to the whole that doesn't have a limit?
As for Petrol, we are being screwed by the oligopolies.  Lets just have one body purchase petrol and then distribute it via govt. filling stations, we could get gas under a dollar a litre.
Has anyone purchased an apple product lately?  don't get me started on those guys, and they claim not to even make a (taxable) profit. 

Next a decent tax on carbon, and use that money to help people shift to a lower carbon economy.

Listen to the chatter - powershop.co.nz - owned by meridian
I first saw powershop.co.nz web site about 5 years ago, while looking over the shoulder of a mate who was busy buying his power for the month - was surprised by the size of the discounts. What is interesting is when you go to their web-site you can't see their offerings on display in the public domain - you have to sign up to see their prices. It's all secret. Now today there is an article in NBR by a guy called Lance Wiggs spruiking powershop and powerkiwi. Powerkiwi comprises 30% of Powershops total sales. I'm trying to work out what Powerkiwi is and does. It appears to be a kiwi version of Enron. If he is a seller through Powershop then he must be buying his power from somewhere and on-selling it. My guess is he is buying on the spot or wholesale market. They must be energy traders like Enron. Stuffed if I can work it out. According to the 3News interview they are spread around NZ and getting bigger.
 
Powerkiwi on NBR
http://www.nbr.co.nz/article/electrickery-10-alternative-suggestions-changing-nzs-electricity-industry-ck-138956

 
Powerkiwi on 3News Video
http://www.3news.co.nz/PowerKiwi-an-online-success-story/tabid/369/articleID/274029/Default.aspx