Labour-Greens to rip up the book on electricity pricing
By Pattrick Smellie
April 18 (BusinessDesk) - The Labour and Green parties have promised to rip up the existing electricity market model, returning to a centrally planned electricity system, a single state-owned power buyer, and breaking up the integrated generator-retailer electricity companies.
Announced on the eve of the partial privatisation of state-owned MightyRiverPower, the announcements have a triple political purpose: to show a united Labour-Green front, a politically powerful offer to cut power prices, and to put a further spoke into the MRP float.
If implemented, there would be a $500 million to $700 million hit to electricity company revenues, said Labour leader David Shearer, who said the policy timing was not deliberately aimed at the MRP sale.
That would flow to savings for households of between $230 million and $330 million and promote the creation of as many as 5,000 new jobs and $450 million a year of additional activity, because of the competitive advantage and increased household buying power created by lower prices, a study for Labour by the BERL consultancy says.
Shearer and Green Party co-leader Russel Norman said the two parties had only realised late in the piece that both parties were both announcing new electricity policies and that the two should be merged.
The MRP prospectus warns would-be investors that regulatory change is a source of risk.
Key to the proposals is the creation of a central buying and electricity system planning agency, dubbed NZ Power, which would drive down power prices because of its market power and would not be required to make a profit.
It would also be the market regulator.
"It will not just supervise the market, it will be actively involved," said Labour's finance spokesman David Parker, a Minister of Energy in the 1999 to 2008 Labour-led administration.
It would tender for new electricity generation, or potentially energy efficiency measures, rather than the current crop of generators competing to identify the next least costly unit of new generation when demand rises.
In some cases, industrial users would be able to contract directly with NZ Power.
Power prices would be set not by reference to the cost of the next new unit of generation, but by average costs that include the anticipated price of new generation. However, there would still be a traded market in wholesale electricity, which could reflect regional variations.
Asked by journalists what signal investors should take from such a substantial proposed intervention, Shearer said "where markets are not competitive and not working, the government will look to see how it can ameliorate the system."
Labour's affordable housing initiative was another such example, while Parker cited Labour's intervention to drive down telecommunications service prices during its last period in office.
Parker said while elements of competition had improved, it would never be possible to eliminate what Labour and the Greens are calling "super-profits" made by power companies over the last 14 years or so.