13 August 2012

Treasury admits that private power companies charge more

Treasury documents confirm research showing that privately-owned power companies charge more on average than publicly-owned ones, signalling future price rises if asset sales go ahead, Green Party Co-leader Russel Norman said today.

Green Party research using Ministry of Economic Development data shows that privately-owned power companies charge 12% more than publicly-owned companies on average. This matches with research by Molly Melhuish using data from the Powerswitch website.

In documents released under the Official Information Act, Treasury acknowledges “the fact that the average retail consumer in a contract with an SOE gentailer was paying less in February 2012 than if they were supplied by a privately-owned firm”. Treasury claims that this is because private power companies target more expensive market segments but provides no analysis of this claim to account for the 12% price difference between public and private electricity providers.

“Privatisation would mean higher power prices for New Zealanders,” said Dr Norman.

“Treasury has admitted that private power companies charge more than publicly-owned ones.

“It just stands to reason that private investors, with their higher cost of capital compared to the Crown, demand higher profit margins, which are created by charging higher prices.

“In fact, Contact’s CEO has complained that his company can’t raise its prices even further to make larger profits because the publicly-owned companies charge less and act as an anchor on power prices.

“Kiwis will not be reassured by the Government’s blithe claim that selling our power companies won’t result in higher power prices. We all remember the experience of the last round of asset sales.

“Higher power prices are another hidden cost of the Key-Banks Government’s ideologically-driven asset sales programme,” said Dr Norman.

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