Adam is a political reporter for the New Zealand Herald.

Business leaders slam Labour-Green power plan

A group of NZ business lobbyists say the Labour-Green energy proposal could have 'a chilling effect' on investment across New Zealand. Photo / Mark Mitchell
A group of NZ business lobbyists say the Labour-Green energy proposal could have 'a chilling effect' on investment across New Zealand. Photo / Mark Mitchell

New Zealand's business leaders have issued an open letter to Labour and the Greens criticising their controversial electricity policy, which may reduce power prices for industrial and commercial users, and asking them to withdraw it.

But Labour and the Greens are sticking to their guns, saying the "hyperbolic claims" about capital flight and wealth destruction added nothing to the debate.

The letter signed by the chef executives of 10 groups including Business NZ's Phil O'Reilly the Major Electricity Users Group's Ralph Matthes, and the Employers and Manufacturers Association's Kim Campbell says they are "deeply troubled" by timing and nature of the policy.

Labour and the Greens have proposed a single buyer model for the wholesale electricity market with the crucial aspect being that generators would receive a price for their power based on their individual cost of generation and a "fair" return on capital.

Under the present "marginal" pricing model, generators receive a price based on most expensive generation used during any given half hour period.

The business groups said they were "particularly" concerned the policies would have a "chilling effect on investment across the entire economy".

They were "especially" concerned by investment analyst reports "noting the potential for $1.4 billion of shareholder value to be wiped off the books of the private power companies".

"A similar amount if not more, will come off the value of the public power companies.

"Capital destruction on such a scale will severely undermine business confidence. It sends signals to investors, on whom the New Zealand economy relies, that their wealth and the benefits it provides are not welcome. Investment plans and job creation opportunities are foregone."

Labour and the Greens have suggested their policy would result in savings for consumers of about $700 million a year with industrial and commercial consumers benefiting from a third of that amount.

However, the letter suggests that protecting businesses from the full cost of electricity would "ultimately dull the incentive to innovate" and make them less internationally competitive.

Reducing retail power prices below the full marginal cost of generation would encourage households to "use more than they should".

"With the good of all New Zealanders in mind we ask you to withdraw these damaging policies."

The groups offered to work with the two parties "in increasing public understanding of the operation of the electricity market and in ensuring consumers, both small and large, have better choice from one of the increasingly competitive electricity markets in the world".

Green Party Co-leader Metiria Turei responded by saying her party would not withdraw its policy.

"The Greens make no apologies for wanting to get power prices down to a fair level. Business New Zealand and National seem to think that electricity companies' profits matter more than lower power bills for families and businesses."

Ms Turei said it was important to note that firms Business NZ was supposed to represent would benefit from the plan.

"NZ Power will reduce electricity costs to business by around $200m a year, allowing them to expand and hire more people. That's why groups like the Manufacturers and Exporters Association have come out in support of our plan."

"Business NZ and National need to explain to small and medium size business owners up and down the country why they should continue to pay too much for electricity.

She said the letter's "hyperbolic claims" about capital flight and wealth destruction
added nothing to the debate.

"NZ Power will lead to a wealth transfer from the electricity companies who have been making excessive profits to families and businesses who will pay less for power. It will create wealth by removing what is effectively a stealth tax on the economy, leading to healthier families and more jobs."

Labour's Finance spokesman David Parker said the letter did not address the current problems in the "uncompetitive electricity market".

"Prices have increased since the independent report from Professor Wolack found $4.3 billion of overcharging. The system must be fixed.

"Currently super-profits are made on the back of our public resource - free water. This must be addressed if power bills are to be lowered. Mr O'Reilly again offers no effective solution.

"The letter repeats the National Government's scaremongering about investment. The NZX stock exchange is up since the announcement. There is no investor flight or fear. It is irrational and damaging to markets and the New Zealand economy to claim there is."

"Rather than having a negative impact on business and jobs, independent economists Berl has found that it will see a $450 million boost to the economy and create 5,000 jobs. Our policy reduces costs to households and businesses," Mr Parker said.

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