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Matt McCarten: An energy plan to hit profiteers

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The Government's asset sale campaign distracts us from the structural unfairness of power prices. Photo / Mark Mitchell
The Government's asset sale campaign distracts us from the structural unfairness of power prices. Photo / Mark Mitchell

Just when we thought the sell-off of our public utilities was inevitable, the Labour and Green Party jointly announced on Thursday that if they become government next year, they will create an agency, NZ Power, that will be the sole buyer of wholesale electricity.

It will effectively have the ability to set electricity prices by using its monopoly to buy electricity from wholesalers and sell on to retailers, regulating fair profit levels for the players in the sector.

The current situation that allows providers to make exorbitant profits at the expenses of New Zealander consumers will end.

The Government was caught flatfooted, going into panic mode. They knew exactly what this policy would do - kneecap its privatisation agenda.

The only reason the sale of Mighty River and the other companies makes any sense is that their profits are excessive because we all pay far too much for our power.

An agency that restricts excessive profiteering will put off quick-profit investors currently lining up for power shares. The best that unofficial co-prime minister Steven Joyce could come up with was his spluttered comment that the agency was a basket-case idea from Albania. Is that the best he can do?

In any event, the correct international example to use overseas would be capitalist California, which brought in a similar agency to stop its power companies from ripping off its citizens. It has worked fine.

At home, the parallel in the health sector is Pharmac, which uses its buying monopoly to negotiate prices with multinational drug companies. It saves us billions of dollars. I haven't heard the Government suggesting abolishing it and leaving prescription prices to the international free market.

The National Party's core constituency, the farmers, worked this out long ago, too. Fonterra does the exact same thing for its farmer members, using their collective muscle to get the best prices for them.

In any event, the Government's asset sale campaign distracts us from the structural unfairness of power prices. The Labour-Green initiative fixes our power price problem.

Household electricity prices currently increase at double the rate of inflation.

The gap between prices charged households and businesses are the second highest in the OECD.

Two-thirds of our electricity is generated by using free water and dams that were built years ago. The four big generators made $4.3 billion. That's $1000 profit for every man, woman and child.

No surprises, then, that the Government sees a political upside in selling these companies off at inflated prices to prospective investors who assume this excess will continue.

Labour and the Greens state their policy will save most households a flat $300 a year and businesses will get a 5 per cent cut in their power bills.

They have also produced an independent report that says the changes will create 5000 jobs and boost the economy by $450 million.

In other words, it's good news on all fronts - price reductions, more jobs, economic stimulus. But the power companies' excess profits will stop, and the Government's asset sale programme looks shaky.

If you are one of the people who put their name down to buy power shares, you might want to check with your stockbroker first thing tomorrow morning.

This week, your potential investment moved from a money-for-jam scheme to a decidedly political gamble on who will win the next election.

Debate on this article is now closed.

- Herald on Sunday

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