Will Lianne allow Orion to price gouge?

August 20th, 2013 at 9:00 am by David Farrar

Mike Yardley at The Press writes:

’s odious proposed price hike, which would gouge an extra $1000 off every Christchurch customer, over and above its existing 25 per cent share of power bills, has run into a brick wall.

The Commerce Commission’s draft report has virtually halved the scope of Orion’s planned cash-grab, while also noting that the community-owned lines company does not have to proceed with this increase.

No-one disputes the critical infrastructure repair and enhancement programme Orion has embarked upon.

But there are alternative ways to pay the $150 million bill for this 10-year project.

As the Earthquake Recovery Minister, Gerry Brownlee, has pointed out, the company’s balance sheet is very strong, its cash reserves are healthy – and Orion has generated $220m in profit in the past five years alone.

Brownlee has described Orion’s proposed price hike as “an appalling slap in the face to the community, by a council-owned company that is behaving like a rapacious capitalist”.

Well that is a clear stance by Gerry. But what about ? Are Labour not against price gouging by electricity companies?

So what is the position of our mayoral aspirants?

And should they be successful on October 12, what pressure will they apply on Orion to abandon this lazy financial assault on a captive market?

Paul Lonsdale swiftly responded to me, pledging to negotiate with Orion’s board to abandon the proposed increase.

But Lianne Dalziel took umbrage at my inquiry as to whether she would lean on Orion to jettison the increase.

Instead, I was emailed a diversionary missive from the red-hot mayoral favourite as to why Orion was an “over my dead body” strategic asset which must be protected.

So is Lianne saying that she supports Christchurch people paying an extra $1,000 a year for power, so long as she owns the company and can get to spend the dividends?

Dalziel also fired off a chapter and verse broadside about why the power retailers are the real “villains”. (Although, unlike the retailers, the customer can’t shop around for a lines company. And, unlike the lines company, the council has no control over power retailers.)

Retailers have competition, and effective competition also. Hundreds of thousands of people swap retailers when they can get better offer. Why would Lianne ignore the monopolist lines company? Oh, maybe because is she becomes Mayor their profits can fund her spending plans?

Of course, all of this is a big fat red herring by the mayoral contender and, surprisingly, Dalziel declined to give me a straight answer on whether she specifically supports Orion’s desire to fleece an extra $1000 out of your backpocket.

It seems like a very reasonable question.

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15 Responses to “Will Lianne allow Orion to price gouge?”

  1. Ed Snack (1,803 comments) says:

    So David, are you supporting the idea the everyone else should pay instead of Christchurch users who will benefit ? Sure, squander the balance sheet, reduce the value of the company, good, populist politics, but Fuck them, why don’t those who *will* finish up paying (the taxpayer) get a say !

    Push of Brownlie and pay for it yourself if you’re that keen.

    [DPF: our assertion that users will benefit by being price gouged is of course wrong. Users benefit from having competition]

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  2. martinh (1,164 comments) says:

    A very reasonable and interesting question for readers to get an answer too.
    And a good response from Gerry too

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  3. liarbors a joke (1,069 comments) says:

    Another reason why Mike Yardley should put his hand up for the chc mayoralty , he would be a fantastic Mayor unlike the fork tongued lefty we are going to get.

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  4. queenstfarmer (758 comments) says:

    Are Labour not against price gouging by electricity companies?

    Not on past form. Regular commentator Black with a Vengeance is also all in favour of the state gouging even its poorest citizens on power prices.

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  5. scrubone (3,090 comments) says:

    is also all in favour of the state gouging even its poorest citizens on power prices.

    But that’s different because… shut up!

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  6. scrubone (3,090 comments) says:

    I’d have thought the entire point of keeping a strong balance sheet is to make it easier to navigate difficult times without having to raise prices dramatically.

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  7. Black with a Vengeance (1,732 comments) says:

    Jeez, you’re a fucking idiot queenstfarmer!!!

    The gouging hasn’t even begun in earnest yet. Just wait til the newly privatised powerco executives need another bonus.

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  8. Nigel Kearney (926 comments) says:

    The problem is lack of competition – and there will never be competition as long as one provider has shareholders with lower than market profit expectations combined with the ability to extract any needed capital forcibly from ratepayers.

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  9. peterwn (3,216 comments) says:

    I was about to be a bit critical of the Commission and Gerry, but the fundamental issue as I see it is whether Orion’s shareholders (predominantly Christchurch City Council) are entitled to receive a continuing return on the value of destroyed or stranded assets, the latter being assets that remain in ‘red zone’ areas that will not be re-built. I think the shareholders have to take this on the nose – it is a valid commercial risk. Orion is however entitled to make a reasonable return on the remaining existing usable assets together with new assets that it needs to build. It would have to borrow to build the new assets, but should be able to obtain a ‘sharp’ interest rate. The Council’s dividend would reduce by the interest it has to pay but the Council has to ‘eat’ that.

    What the Council and directors seem to be trying to do is to maintain the dividend stream to the Council, which badly needs the money. Leanne Dalziel recognises this aspect and it would be in her interests as prospective Mayor that the ‘shortfall’ is made up via increased power bills than increased rates.

    It would be interesting to compare attitudes if Wellington Electricity (completely privately owned) was in a similar situation. There is little doubt that its owners would be expected to take the hit.

    It is possible that the Commerce Commission in its zest to stop profit gouging may not have properly factored in the risk of asset loss due to natural disasters. It is quite reasonable for an acceptable rate of return to allow for this possibility. A measure of this would be the cost of ‘full’ insurances (including business loss) on the network. A prudent lines company may decide not to fully insure, but should be entitled to deduct the estimated cost of ‘full’ insurance when assessing a fair rate of return.

    Therefore Gerry and Commerce Commission are correct in principle, although they may be taking a slightly more niggardly attitude than is reasonable.

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  10. unaha-closp (1,142 comments) says:

    [DPF: [y]our assertion that users will benefit by being price gouged is of course wrong. Users benefit from having competition]

    One of these things is a horrible travesty of epic proportions and the other is a stunning success of visionary enlightenment:
    – Fletchers was awarded a monopoly contract to rebuild the buildings of Christchurch by Gerry Brownlee (Nat.).
    – Orion will be awarded a monopoly contract to reconstruct the power infrastructure of Christchurch by Lianne Dalziel (Lab.).

    Personally I think the residents of Christchurch are getting boned both ways, but I own some shares in Fletchers and live in Auckland so thanks Gerry.

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  11. queenstfarmer (758 comments) says:

    The gouging hasn’t even begun in earnest yet.

    Oh dear you are forgetful. The current Government has actually reigned in the massive price hikes that occurred under Labour – you remember, the ones you are so in favour of? That is a simple matter of fact.

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  12. Black with a Vengeance (1,732 comments) says:

    Well actually QSF, the current government in privatising state owned power companies have just created a scenario whereby previous gouging will seem positively generous. Unlike Labour’s previous squeeze for higher dividends that were done in good times when the money flowed beautifully, this next round of gouging will be done in times of extreme hardship with the money barely trickling down into jobs and higher wages for the less well to do.

    So in line with your statement about the govt reigning in massive price hikes, can we then expect to see Gerry the Hut intervene in Orions proposal and limit power price rises and do the same for MRP, Meridian and Genesis in the future?

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  13. Ian McK (237 comments) says:

    Just another Labourite that has decided to leech off ratepayers now that she has done her dash as a politician . . . a failed one at that! Still not as bad as the ex-Labour MP leeching off GWRC, carrying dishonesty form.

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  14. Inky_the_Red (744 comments) says:

    Where does Yardley and DPF get $1000 per year
    http://www.radionz.co.nz/news/national/216956/canterbury-power-prices-set-to-surge
    If the 15% was agreed that is $8.50 a month or $102 per year where the commission has approved $5.20 a month or $62.40 per year.

    I still think these increases are too high however the residents of Christchurch and Selwyn will pay one way or another. Rather lower dividends, higher rates or reduced services.

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  15. peterwn (3,216 comments) says:

    Christchurch City Council blundered in the first place by insisting on retaining ownership of most of Orion and the airport, instead of selling up and investing in an appropriate spread of securities. Things turned to custard and the council copped an unwanted whammy from its Orion investment. If the Council had spread investments, the badly needed dividend stream would have kept flowing.

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