Kiwiblog

Clint (of Hey Clint fame) tweeted a link to a spreadsheet of power prices since 1979 adjusted for inflation, per kWh.

So this data is from the Green Party itself. So let’s have a look at in graphical form.

So what does it show. The average cost of power was less in 1999 than it was in 1990.

Also that after the 1998 Bradford reforms, the price dropped.

And then under Labour the price skyrocketed.

Since Labour left office, power prices have increased only 2% a year when you exclude the one off GST and ETS decisions which have nothing to do with what generating companies charge.

Labour created the problem, and despite the fact of far lower increases under National, they are using their legacy as a pretext to nationalise the industry.

Bernard Doyle from JB Were writes:

The first blush of the NZ Power policy is another variation of models that have been tried, tested and failed for well over a century. That is, the state looks askance at the messy process of market-discovered price and production and figures it can do a better job.

Labour says as much in its policy document stating; “No one plans the New Zealand energy sector and ensures it operates for the benefit of all New Zealanders”.

The idea of a central planner co-ordinating supply and prices is superficially alluring. But almost invariably it ends in either taxpayer funded over-supply or rationing.

 A brief look at New Zealand’s own history in the energy sector provides ample evidence, with the Think Big projects of the 1970’s an example of well-meaning but ultimately financially crippling supply-side state intervention.

Labour and The Greens say their policy will reduce the cost of electricity to households by around $300 a year, or $6 a week. But there are some very good reasons to doubt that power charges would be even one cent cheaper under Labour. Here’s four reasons why.

1. David Parker said so

“As Minister of Energy he said that “a single buyer would likely result in higher capital and operating costs”. He went on to say that: “The risks involved in changing arrangements could be significant. The resulting uncertainty could lead to investment proposals being put on hold. Direct implementation costs could be large.” And, he admitted that “The single buyer would be relatively poor at sustaining pressure on operational costs.”

So who do you believe? The David Parker of 2006 when he was a Minister or the David Parker of 2013 desperate to regain power?

2. Their plans for the Emissions Trading Scheme

Steven Joyce pointed out:

“When National was elected to Government in November 2008, Labour’s Emissions Trading Scheme was estimated to cost an average family of four around $330 a year based on a carbon price of $25/tonne,” Mr Joyce says. 
 
“The National Government amended the ETS and more than halved the cost to families and businesses. However the Greens-Labour coalition have stated publicly as recently as the beginning of this year that if they were the Government they would increase the price of carbon to $50/tonne.

“This would see a family of four paying $495 extra a year on electricity and fuel; which would more than wipe out any of their claimed savings from their plan to nationalise the power supply.

3. Their policy ignores costs

Economist Matt Nolan commented at Dim Post:

walking out and saying “I’m gonna get people to give you guys $230-$330 a year at no cost if you vote for me” is a incredible load of crap – it isn’t even a bribe because they can’t deliver, it is a lie.

3. The Government will be both the monopoly buyer and seller

This is an aspect overlooked by many people. Not only will the Government be the sole monopoly buyer of electricity from generators, it will be the sole monopoly seller of electricity to retailers. And it will clip the ticket with a margin between buying and selling.

Now sure at first that margin may be modest – just to cover claimed costs. But think about what is likely to happen in the medium to long term. What will happen when inevitably a Government wants more money to fund its spending? They’ll be able to do it by just increasing their margin on electricity sales. A 10% margin would bring in $600 million a year. A 20% margin $1.2 billion. This will be like a special slush fund for politicians who like to spend.

At the moment if the Government wants to significantly increase its revenue, it has to go to Parliament and ask for a change in tax rates. A special law change has to be enacted. It is a public accountable transparent act.

But why go through that process, when you an bring in hundreds of millions of dollars by just picking up the phone to the appointed chairman of NZ Power, and telling him you need some more money. And NZ Power will be the sole buyer and seller of electricity in NZ. No one at all can avoid paying.

Now some may say no Government would do this, as it would be unpopular. And sure in the first couple of years they may not. but if we now have Winston Peters talking about raiding our private KiwiSaver accounts to fund his promises, why on earth would they not use NZ Power as a revenue source in future?

You might even trust the next Government not to use a monopoly buyer and seller to generate revenue for the Crown. You might think the fact Labour took in $3 billion of dividends from energy SOEs was an aberration. But what about the Government after them? And the one after that? Do you really think no future Government will ever try and use a monopoly to generate revenue when it is needed to fund promises?

So I’d be very very wary of the claims that power prices will come down. Sure maybe for a year or two. But I think the more likely outcome is this becomes a cash cow for future Governments.

Current Power Price Increases

Labour have gone on a lot about the increases in power prices in the last 15 years, neglecting to mention most of the increases occurred on their watch. I thought it would be useful to calculate how much power prices have increased since 2008, when you exclude two external policy changes.

The electricity CPI in December 2008 was 1175 and in March 2013 was 1368. That is an increase of 16.4% over 17 quarters.

But GST went from 12.5% to 15% in that time. So to calculate the underlying increase, we should exclude that. That means 2.2% of the increase was due to GST.

Also the Emissions Trading Scheme was implemented. Officials estimate that the impact of this on electricity prices would have been 5%.

So take 7.2% off 16.4%, and this means that underlying power prices have increased 9.2% over 17 quarters.

A 9.2% increase over 17 quarters is equal to a 0.52% compounding increase per quarter, which is very close to 2% a year – which is the midpoint of the target inflation range.

Stuff reports:

Labour is defending the release of its plan to regulate power prices on the eve of the Government’s sell-off of power company assets.

Yesterday, Federated Farmers accused Labour and the Greens of trying to sabotage the sharefloat.

“There is suspicion this policy may be a tactical response to the Government’s asset sales programme,” Federated Farmers spokesman Anders Crofoot said.

However, Labour finance spokesman David Parker said if Labour had waited till after the shares in Mighty River Power and the other state-owned power companies had been sold it would have been criticised.

Of course it is sabotage. If it was not sabotage, they would have announced the policy months ago before the float document was released. To wait until the offer document is out in the marketplace is a calculated act of economic sabotage.

If their policy was to buy back MRP, then there might be a case for saying they had to wait to see the float details before announcing their policy. But there is nothing in the details of the MRP float that necessitated them waiting until after the float document was out, to announce their policy.

Here’s the good thing for investors. Their policy will probably see the share price set at the lower end of the range, however I don’t think it will ever be implemented which means that actually investors will get shares at a discount. Note this is not financial advice. So the real victim of the policy announcement will be taxpayers.

On the topic of the electricity policy, some must reads:

• An open letter from Seamus Hogan to David Shearer and Parker. He has 10 questions for them, including if they have even read the Wolak report they cite.
• A lengthy article by Lance Wiggs at NBR on the electricity industry and some more sensible alternatives to the Labour/Greens proposal.
• A column by Brian Gaynor on how the Labour/Greens policy would be a “major backward step for the economy” and saying “The best way to keep prices down is to ensure there is a competitive market rather than heavy-handed price regulation that is more reminiscent of the Muldoon era“
• A column by Liam Dann. Some extracts:

We’d all like lower power prices. It’s a clever election bribe. But if a government bludgeons down the returns available to international investors they simply won’t invest, they’ll go elsewhere.

New Zealand taxpayers in the future – my kids – will have to earn or borrow the money to pay for new power generation as the population grows.

 Capital is mobile.

If Labour wants to gain votes from swinging voters who still trust capitalism – rather than just appeasing those on the left that joined the Russel Norman party – then Shearer is going to have to do a very good job of convincing them that Labour is not a destroyer of wealth.

Shearer needs to distance himself from the gleeful schadenfreude of those who celebrated the $600 million value destruction suffered by Contact, Infratil and Trustpower in the day and a half after the new policy was announced.

As the policy was designed to sabotage the float of MRP, and destroy wealth, I can’t see any distancing.

He will need to communicate clearly how this policy ensures we have enough foreign capital investment to grow power supply as GDP grows. Presumably Labour still hopes it will grow. The Greens, remember, aren’t so wedded to GDP growth as a concept.

Despite Norman’s efforts to normalise the Greens by talking more about economics than core policy, this is still a party living in a hippie fantasy world. It is a party that “envisions an organic nation” in its policy on food production. Good luck with that. New Zealand owes its first-world status to a world-class, technologically-driven machine of a farming economy. We don’t put that on the tourist posters but let’s be realistic.

People don’t realise how extreme the Green policies are. Now Labour is buying into them, their joint policies are looking to be the an extremely radical policy change – at a time of huge global uncertainty.

I don’t think people realise the precedent that will be created if you allow a Government to nationalise the entire power generating industry, on the grounds that they are not competitive enough and charge too much.

I said that using the same logic, you could nationalise supermarkets on the grounds we do not have enough competition there. Any politicians from the left have been going on about the lack of competition there for some time.

Now Fran O’Sullivan says the energy policy is a Chavez style nationalisation. Well read this story to understand where things may end up:

Citing price-gouging and “multiple violations of Venezuelan laws”, Venezuela’s President Hugo Chavez has nationalised Exito, a chain of supermarkets under French and Colombian ownership.

 

Chavez accused the chain of raising food prices without just cause, after Venezuela devalued its currency earlier this month.

Now both Labour and Greens want to devalue the NZ currency. The inevitable impact from doing so, is price increases. So if supermarkets increased their food prices, it would be the perfect excuse to introduce a single buyer for food also, effectively nationalising supermarkets also.

Some people may say Labour’s policy is not nationalisation, but it substantially is. In theory the power companies remain privately owned, but they will be forbidden by law to sell to anyone but the Government at whatever price the Government demands. That is effective control.

I blogged on Wednesday the following graph:

I was pointing out the Greens are against nuclear, coal and large hydro which doesn’t bode well for the future cost of power.

Now Gareth Hughes has responded with this graph:

But do you see what is missing? The cost of capital or construction. These costs are often the largest part of total costs.

Of course once you have a dam in place, or a wind turbine in place, the operating costs are less than having to keep digging up coal from the ground. But capital is not free (unless you print money!) and there is an ongoing cost to capital – either interest or opportunity cost.

So if you look at the graph I provided, it shows that solar has no operating costs (of course) but huge construction costs.

Now don’t get me wrong. I think renewables are the future. I think wind, hydro, solar and even tidal are part of our future energy supply. But they need to be cost effective. Blanket bans on coal and large hydro are not the way to go.

Fran O’Sullivan writes in the Herald:

The ghost of Hugo Chavez is alive and thriving within the Labour Party as it turns its back on its free-market past to buy itself back into power courtesy of the taxpayers’ chequebook.

And not just nationalisation, but free electricity!

If David Shearer and Russel Norman muster enough votes to win the next election, they say they will toss us all the equivalent of a free 300KW block of electricity

Just as the Greens think you can print money, they and Labour also think you can just give electricity away for free, and somehow new generation will be built.

We are asked to believe this policy will also produce 5000 new jobs and generate $450 million worth of new economic activity because two pages of bare analysis on Berl’s equilibrium model tells us so.

I don’t think so. No one with any residue of grey matter left will believe Shearer’s protestations that the timing of this joint announcement has nothing to do with the pending Mighty River Power IPO.

This policy has all the signs of being rushed out with one aim in mind: To spook the private investors (including the many smaller shareholders who are being enticed back into a New Zealand sharemarket, which was on the verge of its own demise a few years back) who are lining up to buy shares in the forthcoming float.

Indeed.

But the decision to insert a state-owned monopsony – or monopoly buyer – called New Zealand Power between the supply and demand sides of the electricity industry without first undertaking any stringent analysis and submissions from existing privately listed companies like Contact Energy, TrustPower, Infratil and the privately owned Todd Energy really amounts to nothing more than effective renationalisation of the competitive sector.

And why are they nationalising them? Because they hope it will gain votes?

But what is really instructive from the BusinessDesk report (a good scoop, by the way) is Jones’ admission that not only do asset owners need dividends but “politicians need dividends as well”.

The report went on to note that to win the 2014 election, Labour needed to move about 5 to 7 per cent of the voting public to favour it.

Jones suggested energy analysts’ capacity to “make 5 to 7 per cent of the public hate us [because of this policy] is zero. Our capacity to impress that percentage [with this policy] is infinite”.

In other words, the sniff of power is so enticing to Jones that he is prepared to give away the return on state-owned assets to consumers to bribe his party’s way back to power.

Their next policy may be to announce that if you have more than one house, the government will confiscate it and give it to an aspiring home owner.

Colin Espiner writes at Stuff:

Has Labour actually gone insane? As in stark, raving, Monster Loony Party mad?

I’m assuming the answer is yes, judging by today’s incredulity-creating announcement that, if elected next year, Labour will essentially nationalise the electricity industry.

This is the sort of policy UK Labour would have had under Michael Foot in the 1970s.

At a stroke, Labour is proposing to dismantle the electricity market, ruin Contact Energy and Mighty River Power and decimate the Government’s share float plans for both MRP and Meridian. 

Oh, and sell thousands of mum and dad investors down the Mighty River, since MRP’s share price would almost certainly plummet if the company was forced to retail only through a government department at whatever price it deemed to be fair. 

Not just MRP and Contact. Also TrustPower and Todd Energy. Every single generator of electricity would effectively become nationalised as they would only be allowed to sell electricity to the Government at whatever price the Government unilaterally sets.

I’m no fan of high power prices – and I don’t own any Contact or MRP shares – but what Labour is proposing is essentially nationalisation a la Brazil or Argentina. This is Third World, funny-money stuff. Goodness knows what the fi

nancial markets will make of it. And what message does it send to overseas investors? 

The impacts of this policy will be felt far beyond the electricity sector.

I’m tempted to see this as a last-ditch attempt to derail National’s plans to part-sell its electricity assets, but if that’s the case it’s going to seriously annoy a lot of investors who were poised to put funds into Mighty River Power. 

It’s extremely rare that I agree completely with Economic Development Minister Steven Joyce, but his comment today that the plan was “a return to the 1970s-style monopoly provision of electricity…Only North Korea and Venezuela did not think such ideas are nuts” is pretty much spot on.

I agree with Joyce that Labour is virtually sabotaging the economy. 

As does Business NZ, reported here.

Also the Herald editorial is scathing:

Earlier this week, a Herald editorial suggested people thinking of buying Mighty River Power shares had little to fear from David Shearer’s statement that the Labour Party planned to shake up the electricity market when next in power. That, however, was before it was known how far back in time Labour planned to travel and how errant its policy would be.

We need policies for the future, not attempts to turn the clock back.

This suggests nothing less than a return to central planning. It harks back to the situation that pertained before the electricity industry was transformed from a state monopoly into a market supplied by four main generating companies. Mr Shearer seems to be looking at that time through rose-tinted glasses, ignoring the inefficiencies and, most notably, the blackouts that were a feature.

Security of supply would become a real issue. Why would a generator invest in new generation capacity when the price for any power it produces will be unilaterally decided by a government department?

The most unfortunate aspect of Labour’s new policy is that it has identified the problem. “When markets are not truly competitive, excessive profits are extracted from consumers,” David Parker, the party’s energy spokesman, said yesterday. The most logical response, however, is not to return to a failed approach but to provide the setting for competition to flourish. Despite all the criticism of price rises, the market has succeeded to the extent that there has never been a power failure. It also has the framework that offers the best outcome for consumers.

The telecommunications market confirms as much. But making a market truly competitive generally requires a substantial amount of tinkering. Temporary government intervention may be required to facilitate the development of competition. But that is not Labour’s intention. In cahoots with the Greens, it proposes a move which, if implemented, would be every bit as damaging as some of the latter party’s monetary policy delusions.

More and more of the policies being put forward by Labour and Greens are 1970s policies.

Their monetary policy is to go back to pre 1980s reforms. Their welfare policies are to bring back universal child benefits such as we had in the 1970s also.

Stats NZ released Q1 2013 inflation data today. The CPI went up 0.4%, and only 0.2% if you exclude the increased excise tax on tobacco. This brings the annual inflation rate to 0.9% which is good.

I had a look at the electricity component of the CPI and power prices went up only 0.15% in the last quarter.

National has now been in Government for 17 quarters. The total increase in electricity prices over those 17 quarters has been 16.4%.

During the last 17 quarters of Labour, electricity prices increased 33.1%.

The moral of the story is it is very easy to promise things. But I think you need to judge those promises against their record.

Stuff reports:

Labour and the Greens will unveil their policies to cut power prices on Thursday.

The announcement follows criticism of Labour leader David Shearer after he said the party would make changes, but did not say what they would be.

Shearer said on Sunday that Labour would make changes to the electricity sector if it was successful in the 2014 general election.

He said he was announcing the plan because it was only fair to those considering buying shares in Mighty River Power.

Or, they are trying desperately to scare people off. The more relevent information they should be disclosing is whether they will purchase back the shares, if they win Government.

“The reason we’re doing this is because we both share the same ambition to bring down electricity prices,” Shearer said.

Really? I hope media ask Labour about how their proposed changes to the Emissions Trading Scheme will double the impact of the ETS on power prices.

Also look at all these Green party policies that would push the price of power up:

• Development of a fully renewable electricity generation system – that will push costs up as renewables tend to cost more.
  
• Encourage the development of emerging renewable technologies by setting Feed In Tariffs whereby they will be paid a higher rate per kWh generated for the first few years; – ie force consumers to pay more for electricity
• The Green Party does not favour further large hydro plants – ie no economies of scale
• The Green Party believes that the best way to reduce emissions from mining and burning coal is to leave the coal in the ground
• Phase out fossil fuels, starting with coal
• Making all new deep sea drilling within territorial waters, the EEZ and the continental shelf for fossil fuels a prohibited activity

Now if you think these policies will lead to cheaper electricity, I have a bridge for sale you can buy.

I can’t find data for New Zealand on costs of various sources, but this US graph illustrates pretty well.

Now nuclear is not an option for NZ. The Greens want coal banned. They also want no more large hydro projects. They want NZ to be 100% renewables. And both Labour and Greens want to double the impact of the ETS on power prices.

The idea of cheaper power prices under a Labour/Green Government is as plausible as Palmerston North becoming a tourist mecca.

I am a fan of renewable energy, but decisions on using it need to be based on it being cost effective. Blanket bans and prohibitions on coal and large scale hydro will inevitably lead to much higher power prices.

The Dom Post editorial:

There are good reasons to be cynical about Labour leader David Shearer’s vague promise to rein in power prices if he becomes prime minister next year.

It’s like King Canute claiming he can stop the tide – except King Canute knew he couldn’t.

First, it will have escaped nobody’s attention that Labour had plenty of time to ease the burden of electricity costs for households and businesses during the nine years it was in government from 1999 to 2008. But instead of putting in place measures to achieve that, it presided over a nearly 70 per cent rise in prices and happily raked in more than $3 billion in dividends from the state-owned power companies.

And this was a time of record surpluses.

Clearly, Labour had no problem with families and small businesses being hit with unnecessarily inflated electricity bills when the cash was helping to fund its big spending policies. That only appears to have become a concern once it was turfed out of office.

Exactly.

Mr Shearer says the policy has arisen from the prospect of power prices soaring further once 49 per cent of Mighty River Power, Genesis and Meridian are sold into private hands. However, as the price gouging by the three companies between 2001 and 2007 showed, vesting full public ownership in a power company does not necessarily guarantee lower prices. Indeed, figures issued by Energy Minister Simon Bridges in February showed that, at that time, private companies were offering the lowest rates in 15 of the 21 regions on the Powerswitch website, which allows consumers to compare prices.

What matters is having choice and competition, not ownership.

It is difficult to escape the conclusion that Mr Shearer’s main aim in announcing the policy the day before the first shares in the part privatisation of MRP were offered to New Zealand retail investors was to dampen down interest in the sale. The woeful lack of detail only supports the view that it has been made up on the hoof and rushed out as a last-minute sabotage tactic.

Sabotage is a good word for it, but it was such a pitiful attempt at sabotage, with no details, that it was more like a damp fire-cracker.

David Shearer has said:

David Shearer is today signalling Labour’s intention to make changes to the electricity sector to stem the relentless rise in power bills and to ease future pressure on prices from foreign investors looking to boost profits at the expense of consumers.

“Over the past 15 years, the annual average household power bill has gone up by almost $770, even after inflation is taken out. Prices in New Zealand are rising faster than in our major competitor countries.

Indeed power prices have gone up a lot over 15 years. When Labour were last in office they took $3.1 billi on in dividends from state owned power companies – despite massive surpluses.

Also Labour seem to not be mentioning that their ETS policy is to double the impact on power prices of the ETS, which will push prices higher.

The history of electricity cost increases in NZ, according to Stats NZ is:

• 4th Labour Govt – 98.7% or 16.4% a year
• 4th National Govt – 47.5% or 5.3% a year
• 5th Labour Govt – 63.7% or 7.1% a year
• 5th National Govt – 16.2% or 4.1% a year

So the average increases since 2008 are historically low, and the two periods of massive increases both occurred under Labour Governments.

James Weir at Stuff reports:

Opposition parties say Tiwai Point smelter’s majority owner is trying to force the Government into a subsidy for the $1 billion a year aluminium plant in a deal with not enough transparency.

A snag in negotiations between state-owned generator Meridian Energy and Rio Tinto over power prices at the Tiwai Point aluminium smelter may have implications for asset sales, with the Government lining Meridian up for a float after Mighty River Power.

Earlier today it was announced that despite government involvement, talks between Meridian and the smelter company had effectively broken down, with a deal “unlikely”.

Meridian said it still hoped to get a deal, and Prime Minister John Key has cautiously said asset sales can go ahead despite the snag.

Last year, Rio Tinto said the smelter could close if it did not get cheaper power prices from Meridian, even though a long-term electricity contract came into force this year. The smelter uses about 15 per cent of New Zealand’s electricity.

Green party co-leader Russel Norman said today: “Rio Tinto are using the Government’s asset sale programme to screw Meridian Energy for a better deal [on power prices], that is as plain as day.”

Yep, they are.

Rio Tinto are absolutely trying to use the situation to get better terms for a deal they had already signed up to.

Meridian as the commercial operator is best placed to make the decision about what sort of volume discount they give the smelter. The Government should not be involved in any price negotiation.

If Rio Tinto decide to closer the smelter because they can’t get a low enough electricity price, then that is their decision to make. It would be very sad for those who work down there, but would also mean that we’d probably see power prices drop all around New Zealand. That’s not an entirely bad thing.

The market would adjust, with some smaller power stations possibly closing.

Energy News (paywall) reports:

It’s official – Max Bradford is the best Minister of Energy this country has seen in 45 years.

The eponymous architect of the 1998 reforms – which famously separated networks from retailing and completed the four-way split of ECNZ – received 23 per cent of the vote in our recent poll.

We asked readers to name the `best’ energy minister going back to 1977, when the former mining and electricity departments were combined into a single ministry.

“Good lord,” Bradford said by phone from Bangladesh last week, where he is leading a World Bank project to help improve the effectiveness of the country’s parliament. “I would have thought I would have been the most infamous.”

What is interesting is when you look at power prices in the last 20 years.

The Bradford reforms clearly worked. Power prices dropped for around three years – something that had never happened before. Then Labour’s policies started to impact and prices soared.

I got e-mailed this graphic, which originally appeared in the ODT.  Very clear that the much derided reforms of Max Bradford were in fact great for consumers, and it was the changes made by Labour that saw price soar (despite Labour running massive surpluses and owning the companies).

The Herald reports:

Tradable inflation, which covers items open to foreign competition, was unchanged in the quarter, due to falling prices for second-hand cars, petrol and dairy products. On an annual basis, tradable inflation shrank 1.2 per cent.

Non-tradable inflation rose 0.5 per cent in the quarter at an annual pace of 2.3 per cent, mainly due to higher local authority rates.

Rates can not keep increasing as an unsustainable rate.

Transport prices fell 1.1 per cent in the quarter, with the price of petrol down 1 per cent, second-hand car prices down 2.8 per cent and domestic air fares falling 7.8 per cent. Fresh milk prices fell 3.8 per cent in the quarter, while telecommunication services prices declined 1.8 per cent.

Food prices rose 1.1 per cent in the September quarter, led by more expensive produce, while grocery food prices fell 1.6 per cent.

Dwelling insurance prices surged 17 per cent in the quarter, and are up 43 per cent on an annual basis as insurers pass on rising reinsurance costs in the wake of a series of earthquakes that levelled Christchurch, the country’s second-biggest city.

Yeah my building insurance costs have doubled, and our building is well above code.

What I find most interesting is the household energy costs. Do you recall earlier this year stories proclaiming massive increases in electricity prices, and the like. I was somewhat critical of those stories as they never gave any hard data as to what the actual increases were.

Well for the quarter, household energy costs increased a mere 0.3%. For the year a 3.9% increase. This compares to annual near 8% increases from 2002 to 2008.

Stuff reports:

A new report by the Treasury claims private power companies offer the cheapest electricity in most parts of New Zealand, using the same survey that the Green Party claims shows the opposite. …

Last week, the Treasury issued a report that said recent analysis of the figures was “inappropriate”, because it used an average for the entire country, taking no account of regional price differences.

In other words, Treasury looked at the actual prices on offer to real people, rather than used a theoretical average that no one actually pays.

According to the Treasury’s figures, in 21 of 45 regions, private-sector companies were, on average, cheaper than the SOEs, including those in seven of the 11 largest regions.

Private-sector companies had the cheapest offerings in 29 of the 45 regions, the Treasury says, and were the second-cheapest in another six.

“In our view, the assertion that SOEs offer cheaper prices than private companies is not supported by the evidence,” the report says. “In any case, what matters is not ownership – it is . . . the level of competition among retailers.”

This is the key point. You can choose between six to 12 retailers in most areas. And hundreds of thousands of people are choosing and swapping each year.

In Auckland the cheapest retailer is the privately owned Pulse. They are $250 a year cheaper than Govt owned Mercury. Contact is $200 a year cheaper.

In Christchurch the average charge ranges from $1,950 to $2,600 with private companies being the cheapest and most expensive. It is about choice and competition – not ownership.

Labour and others have been claiming that the cost of power from privately owned power companies is much more than SOEs, and hence scare-mongering that the partial sales will make power prices go up. I have debunked this myth on two previous occasions.

A further debunking is done by Tony Ryall:

 “Treasury advises there are 21 regions listed on the Consumer Institute’s Powerswitch website. In 14 of these regions the cheapest electricity company is privately owned, in 1 the cheapest company is owned by a council, and in the other 6 an SOE is cheapest.”

You can see the data for yourself here.

Treasury advises that in the 12 months from May 2011 to April 2012, 422,256 customers changed electricity retailers (or an average of 35,188 each month)

That is excellent. Competition is what keeps the prices down.

On The Nation today:

Duncan        So looking at the asset sales, if you were to get into government and not sell those assets, how would you control power prices?  Because that has been a major issue over the last ten years, and National one of their big attacks in office has been that under your leadership, when I say leadership I talk about the Labour government, power prices went up 70-80% over ten years.  What will you do?  What reassurance can you give to voters that you’ll control power prices.

Phil              Oh the power prices are gonna fluctuate depending on how much extra you build in terms of generation.  No but what you can assure them is this.  That you don’t have an outside foreign investor coming in, wanting a really big return on their investment, because you know, and you know from Contact Energy that this happened, that your power prices will go up if you privatise.  Contact Energy was charging 500 bucks a year more for an average family of four, than any of the SOEs.

As Garner pointed out power prices went up massively under Labour, and the increases under National have been much lower. But the big fib is on Contact Energy charging an average family $500 a year more.

First of all, even if true it would not be a big issue, as people can swap providers and hundreds of thousands have and do. But it is not true.

Consumer has price info for various areas. I picked Auckland to start, as our most populous area. The current prices:

• Genesis $2,096
• Mercury $2,083
• Meridian $1,971
• Contact $1,918

So in Auckland Contact is cheaper than the three SOEs. The total opposite to what Goff claimed. They are in fact $178 cheaper than the most expensive SOE, not $500 more expensive.

Why is no one in the media fact checking these claims?

I decided to check all four major cities. Christchurch is

• Meridian $2,055
• Mercury $1,893
• Contact $1,833
• Genesis $1,763

Contact is cheaper than two of the SOEs.

Wellington is

• Contact $2,093
• Mercury $2,080
• Genesis $2,042
• Meridian $1,945

In Wellington they are more expensive, but by only $13 to $148.

Dunedin is

• Meridian $1,929
• Mercury $1,967
• Contact $1,908
• Genesis $1,756

Again Contact is cheaper than two of the SOEs.

Andrea Vance in the Dom Post reports:

State-owned power companies will be “lost forever” if they are sold to private buyers, Labour leader Phil Goff says.

Launching the party’s “Say No to Asset Sales” campaign in Auckland last night, Mr Goff attacked National for the proposed part-sale of Mighty River Power, Meridian, Genesis and Solid Energy.

In January, Prime Minister John Key floated the idea of a selloff if National won a second term.

At last night’s public meeting, Mr Goff said power prices would “skyrocket” if the energy giants fell into private hands. “The last thing struggling middle and low-income Kiwis need is for their power prices to go up at an even faster rate. That is exactly what will happen when new private and foreign owners of our electricity companies demand better returns on their investment.”

So many targets to shoot at, where do I start.

First of all it is Labour Party policy to have power prices go up by an extra 3% (on top of any other increases) through their amended Emissions Trading Scheme. Labour has campaigned on removing the current subsidies from the ETS, which will immediately put power prices up by 3%. So they are campaigning on lower power prices, with a policy which will do exactly the opposite.

Secondly their record in office is appalling. According to Stats NZ CPI index, the cost of electricity increased by 63.7% over their nine years in office. No that is not a typo – 63.7%. In the previous nine years the increase was 47.5%.

If you divide the total increase by the number of years (I know that ignores the compounding effect but let’s keep it simple) that is an average 5.3% annually in the evil 1990s and an average 7.1% under the lovely kind nine years of Labour.

And since Labour got booted out? The electricity index has gone up 8.0% over two years or 4.0% a year.

And is Goff correct in his claim private owners will demand higher returns than public owners? Well apart from the fact minority owners can’t set the price, this claim is disagreed with by the Consumers Institute:

Consumer NZ chief executive Sue Chetwin agreed with Mr Key’s assessment that electricity prices would not increase with partial privatisation.

“The power companies over the past 10 years have been rapacious in putting up their prices and I don’t see that making part of the company available for the public to invest in will make much difference there.”

However, Ms Chetwin said companies would become more transparent and would have to explain their actions to the public.

So remember whenever you hear Labour talk about power prices:

1. Their ETS policy will increase power prices by a further 3%
2. Power prices increased by 64% during their last stint in Government
3. They took in over $3 billion of dividends from the state owned power companies, despite it being a time of record surpluses
4. Consumers Institute says allowing minority private shareholders will not increase prices, but will increase transparency

I seriously laugh out loud everytime I see Labour calling for the Government to reduce dividends from energy SOEs. They’re at it again:

Labour leader Phil Goff said there had been price gouging and state dividends were too high. He said Labour’s version of the ETS – which would have involved price rises double National’s – would have come with compensation for the worst affected. But Mr Key and State-Owned Enterprises Minister Simon Power said the Government would not change its dividend policy.

Useful reminder that Labour’s policy was to double the cost of the ETS on power and fuel users. This adds to their record of power prices going up 64% in their last seven years of office.

But back to dividends from power SOEs. Labour took a staggering $3.1 billion in dividends during a period of record surpluses.

Now when the Crown’s books face massive deficits, and we are borrowing $230 million a week, Labour thinks these dividends should be reduced.

Labour’s at it again, with Grant Robertson blogging:

Today I spent some time with the residents of one of the Council housing blocks in Wellington.  I really enjoy my catch ups with these groups as they give me a regular update on what matters to people who come and go on very modest incomes. And there was one resounding message.  Coming out of winter the biggest issue is power prices.  These folk are watching every dollar, and they see the moves up and down.  This has been a hard year and looking back over the last few years the increases have been large. They are not necessarily up to date with moving between companies, and the companies are generally not chasing them.  They do wonder why the government is taking such a big profit from the power companies it controls on the public’s behalf.

I’ve dealt before with the hypocrisy of taking $3.1 billion of dividends in a time of massive surpluses, and then complaining about more modest dividends in a time of huge deficits.

But today I want to look at power prices itself. Luckily the CPI has a section on domestic power prices, so one can calculate average increases each year. And here is what it has been:

• 2002 7.2%
• 2003 9.1%
• 2004 8.8%
• 2005. 4.4%
• 2006 7.8%
• 2007 6.2%
• 2008 7.9%
• 2009 2.3% (for three quarters)

So since the election power prices have gone up 2.3% on average and according to Grant this is the biggest issue.

As even Grant acknowledges there have been large increases for many years. Including when Grant was effectively the Deputy Chief of Staff in the PMs Office. Did Grant use that position then to advocate for lower power prices? Did anyone say “Hey Michael, our surplus is almost $10 billion, so why don’t we ask the power companies we own to reduce their profits?”

So let me see if I have Labour’s position summed up well:

• It was okay to take $3.1 billion in dividends from state owned power generators, during a time of huge Crown surpluses, but we are now very sorry about it.
• Now when the Crown is borrowing $250 million a week is the right time to reduce the dividends, so even more money than $250 million a week needs to be borrowed
• A 2.3% increase in power prices since the election is the biggest issue facing most households
• Hope people forget that power prices in the last seven years of Labour went up 64%, an average of around 9.1% a year.

I really hope Labour keep campaigning on power prices. I’m never going to get sick of reminding people of this.

I’m very cynical of Labour’s new stance on state owned power company dividends. The reality is that during a period when the Government enjoyed massive and record surpluses, Labour took in hundreds of millions of dollar in dividends.

And then suddenly within a few months of losing office, they now say it is wrong to do so – at a time when the Government is now running massive and record deficits and any reduction in dividends would be far more difficult.

I’m not arguing for the energy SOEs to price gouge – far from it. The sector needs reform. But there does need to be a return on capital that at least matches the cost of financing crown debt.

Labour also seems to be confused about the difference between dividends and retained earnings:

“Labour can and will stop price gouging. We will not demand excessive dividends coming back into state coffers above what is needed for investment in new generation.”

The dividends do not fund investment in new generation. It is almost the opposite. It is the amount of profit that you do not pay out in dividends that is used to fund new generation.

I’ve just added up the total net profit after tax for the six state owned energy companies for the last five years, and they were:

1. 2004 – $406m
2. 2005 – $561m
3. 2006 – $1,230m
4. 2007 – $622m
5. 2008 – $451m
6. Total – $3.27b

So under the last five years of Labour, the state made a profit of $3.27 billion (after tax) from the energy sector. And again, this was at a time of record crown surpluses. I don’t have handy how much was paid as dividends, but people should remember the $3.27b when Labour go on about excessive profits. Over their total nine years, it might be as high as $5b.

Most readers will be aware of the power reforms introduced by Max Bradford in 1998. Labour and others would have you believe they are responsible for everything bad in the power sector, even though all they did was fairly sensibly bring in competition at the generator and retail level.

This chart of inflation adjusted prices dispels the myths that the Bradford reforms are what led to the price increases. Prices were increasing prior to the reforms. Immediately after the reforms both fixed and total charges decreased in real terms. And it was after 2003 that total prices rose faster than inflation. Interesting line charges are still cheaper in real terms today than in 1998.

Talking of power charges, had a very good experience with Powershop recently. They have no fixed daily charges – you buy your power in blocks, which has the effect of becoming much more aware of usage patterns, and cost.

Now I accidentally left a heater on when in the US in July. It was on temperature control, so no danger, but meant my daily unit consumption increased from 8 units a day to 15 or so. Then when I was overseas in Hawaii, I missed a meter reading so they did an estimate and the computer estimated I was using 35 units a day. And this was far too much – especially as I was overseas using almost none.

So when I got back, I did a meter reading and entered it in. However the reading was so far below what the system was expecting, the website would not accept it.

So far not good, but I filled in an online message and explained the reading was low as I had been overseas and was correct. The next day not only had the system accepted the reading, but I got a personal phone call to check I was now happy. Now that is good customer service.

The system is now estimating I used 6 units a day, which is too low. But once I do another reading (you can do them weekly if you want), it will get closer to the mark.

I’m actually looking forward to gaining a year’s worth of data, so I will be able to see how much extra the cost is in winter of sticking a heater on etc. Also I am getting a good idea of how much a unit of power costs in winter, spring and summer.

Not everyone likes doing their own power purchasing, but I much prefer it to just getting sent a bill every month. Also Powershop never threaten to disconnect you for paying late!

As we celebrate the first personal tax cuts in a decade, power prices look set to increase 12% for many customers next month. This comes on top of a 48% increase in domestic prices over the last five years.