Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Power report ducks question of fair prices, Bertram says

Power report ducks question of fair prices, Bertram says

By Pattrick Smellie

Feb. 11 (BusinessDesk) – Taking electricity company asset values back to 1999 levels, as proposed by the Labour and Green parties, would allow consumers to be charged “fair” prices for electricity, says industry reform critic and Victoria University academic Geoff Bertram.

Responding to a report authored by the Sapere economic consultancy for Business New Zealand, which argues the retail electricity market has become competitive and that Labour and Green party policies could push power prices higher, Bertram says “the authors have simply ducked the question of what is a fair electricity price.”

“Regulators in countries such as the US and the UK set prices after asking ‘what is a fair return on the capital generators have actually invested?’” said Bertram. “The Sapere report does not go there.”

Instead, it argued that “today’s inflated values” for electricity assets should be confirmed, which then allowed Sapere to argue that prices would be higher than lower than under the Labour-Greens proposals.

“Labour and the Greens propose to bring asset values, and so prices, back down to historic cost in order to reverse the huge wealth transfers from consumers to the companies over the past decade,” said Bertram. “They plan to take the valuations of generating assets back down to where they ought to have stayed after the 1999 privatisations (of formerly state-owned Contact Energy), and in the process bring down prices for residential customers.”

The Sapere report cites the actual development costs of some of New Zealand’s largest hydro projects, including the Clyde and Tongariro projects, to argue that “measured in today’s dollars, the historic cost of much of the hydro generation plant exceeds current values and hence a far return would not reduce prices.”

“Over the life of these assets, valuations have been made at various dates which may be lower than the historic cost of current values (such as when assets were transferred from a government department to a state-owned enterprise).

“Selecting and imposing one of these valuations on the current owners of the assets is not supported by economic arguments and would be likely be viewed as capricious by investors in long-life assets.

“It is for these reasons that the experience to date in New Zealand and elsewhere in the world is for governments to adopt the most recent valuations as historic cost values when regulation a move from current valuations methods to historic cost methods.”

The report argues the Labour-Greens central buyer policy for wholesale electricity is not properly targeted at retail competition, could lead to higher prices if true historic costs are used, and appears to imply a 40 percent drop in current wholesale electricity prices to achieve power cost cuts to households of around $300 a year.

Moving to a central buyer would also discourage smaller, new entrants to electricity retailing in favour of very large retailers seeking economies of scale, which would stifle innovation.

“This is perhaps why no country has managed to implement retail competition under a single-buyer wholesale model,” said the Sapere authors, Kieran Murray and Toby Stevenson, who were involved in the implementation of reforms in 2010 that are credited with improving the competitiveness of the retail electricity market.

The report says electricity price rises have not been well explained, transparency of pricing is inadequate, and that government interventions akin to the Accommodation Supplement may be justified to deal with the fact that energy poverty is on the rise.

Simply lowering prices would not necessarily solve energy poverty, since for many people, the issue was the quality of their housing and inability to afford energy efficiency investments.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Company Results: Air NZ Rides The Tourism Boom With Record Full-Year Earnings

Air New Zealand has ridden the tourism boom and staved off increased competition to deliver the best full-year earnings in its 76-year history. More>>

ALSO:

New PGP: Sheep Milk Industry Gets $12.6M Crown Funding

The Sheep - Horizon Three programme aims to develop "a market driven, end-to-end value chain generating annual revenues of between $200 million and $700 million by 2030," according to a joint statement. More>>

ALSO:

Half Full: Fonterra Raises Forecast Milk Price

Fonterra Co-operative Group Limited today increased its 2016/17 forecast Farmgate Milk Price by 50 cents to $4.75 per kgMS. When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers in the current season is forecast to be $5.25 to $5.35 before retentions. More>>

ALSO:

Keep Digging: Seabed Ironsands Miner TransTasman Tries Again

The first company to attempt to gain a resource consent to mine ironsands from the ocean floor in New Zealand's Exclusive Economic Zone has lodged a new application containing fresh scientific and other evidence it hopes will persuade regulators after their initial application was turned down in 2014. More>>

Wool Pulled: Duvets Sold As ‘Premium Alpaca’ Mostly Sheep’s Wool

Rotorua business Budge Collection Limited (Budge) and sole director, Sun Dong Kim, were convicted and fined a total of $71,250 in Auckland District Court after each pleading guilty to four charges of misrepresenting how much alpaca fibre was in their duvets. More>>

Reserve Bank: Labour Calls For Monetary Policy To Expand Goals

Labour's comments follow a speech today by RBNZ governor Graeme Wheeler in which Wheeler sought to answer critics who variously say he should stop lowering interest rates, lower them faster, or that inflation-targeting should no longer be the primary goal of the central bank's activities. More>>

ALSO:

BSA Extension And Sunday Morning Ads: Digital Convergence Bill Captures Online Content

Broadcasting Minister Amy Adams has today announced the Government’s plans to update the Broadcasting Act to better reflect today’s converged market... The Government considered four areas as part of its review into content regulation: classification requirements, advertising restrictions, election programming and contestable funding. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news