The Business Herald’s markets and banking reporter.

Power plan an 'ambush'

Business lobby groups say Opposition's electricity policy sets a 'disturbing precedent' for intervention in future

Photo / NZ Herald
Photo / NZ Herald

New Zealand's leading business lobby groups say the Labour Party and the Greens have "ambushed" businesses with their controversial electricity policy which they claim sets a "disturbing precedent" for further intervention.

Ten business groups led by Business NZ yesterday issued an open letter to Labour and the Greens criticising the policy - which the two political parties argue may reduce power prices for industrial and commercial users - and have asked them to withdraw it.

But Labour says the business groups are merely continuing the Government's "scaremongering" over the policy and are ignoring significant problems with the current market setup.

In the letter, business group chief executives including Business NZ's Phil O'Reilly, the Major Electricity Users Group's Ralph Matthes, and the Employers and Manufacturers Association's Kim Campbell said they were "deeply troubled" by the 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 the 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 forgone."

O'Reilly said the open letter requesting the withdrawal of the policy was the first of its type he had been involved with in nine years with Business NZ.

"That might demonstrate how much disquiet that policy announcement has caused within the wider business community."

Not only would the policy have a huge impact on the way New Zealand was viewed as an investment destination, it was done "rather by surprise and rather by ambush".

It was perceived as highly negative "not just in what they've said but in the way they've said it" with no consultation with business.

As such, it set "a disturbing precedent".

"If this is par for the course when Labour says they want to have hands-on Government then God knows what's going to be next."

Shane Solly, portfolio manager at Mint Asset Management, said regular changes to government policy created uncertainty for both domestic and international investors.

"New Zealand's got a bit of history doing this."

Solly said investors put money into businesses like Mighty River Power because they tended to have predictable earnings.

"If you go and change the rules then you've suddenly got a situation where that predictability is [gone] and you've got to restart."

But Labour's finance spokesman, David Parker, defended the substance and timing of the policy, saying it had to be disclosed before people signed up for shares.

He said 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."

The letter did not address the current problems with the "uncompetitive electricity market" including estimates by US academic Frank Wolack of $4.3 billion in overcharging and the "super profits" being made by some generators using water - a public resource.

Labour and the Greens have suggested their policy would result in savings for consumers of about $700 million a year.

Green Party co-leader Metiria Turei responded by saying her party would not withdraw its policy and 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 $200 million 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," Turei said. "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."

- NZ Herald

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