Buying shares won't zap bills

Buying shares in Mighty River Power would not protect people from the risk of rising power prices, according to Domestic Energy Users Network lobbyist Molly Melhuish.

On average, state-owned company charges were about 3 cents a kilowatt hour cheaper than privately owned companies, but that gap was expected to narrow as state companies were partly privatised, she said.

Power prices rose 4.5 per cent in the June quarter, after slight falls in the previous six months, according to latest inflation figures.

State-owned power prices average just under 25c a kW/hr, compared with just more than 28c a unit for private companies, led by TrustPower at the top, at 29c.

According to the Powerswitch website calculator, a Wellington household of four using electricity would get the cheapest deal from MRP's offshoot Mercury, with an online sign-up plan costing about $2500 a year.

The most expensive are privately owned Contact and TrustPower at about $3100, about $600 a year more.

At the weekend, the Government announced that it would sell a minimum of $1000 of shares to individuals for the float of Mighty River Power, expected in September.

Individual buyers were guaranteed up to $2000 of shares but, if demand is strong, applications for more than that would be scaled back.

There would probably be a bonus share issue for those who held initial shares for three years, but that has not been confirmed.

Melhuish said she was getting reports, anecdotally, that some people were getting their highest-ever power bills this winter, with one two-person household paying more than $500 a month.

But she did not think buying shares in Mighty River would help offset power bills and she did not believe it would be a good financial bet either.

“It doesn't protect you against the risk of rising prices,” she said.

Every price rise tipped more people from "survival to desperation".

“Spend your money not on financial advisers, but home energy advisers,” Melhuish said.

However, Wellington lawyer and blogger Stephen Franks, who has been involved in state-owned companies in the past, said he would buy into Mighty River Power. “Yes, I would because, in all investment, entry price is the key,” he said.

The Crown would price the Mighty River shares at a level it genuinely expected to provide all the new investors with a good experience, with some assurance of “upside” without offering windfall gains.

Just how much was “hard to calculate though and even harder to control”, Franks said.

State asset sales were not always a sure bet for the buyers, he said.

The National government sold the central North Island forests for $2.2 billion, in the 1990s but the buyers, Fletcher Challenge, Brierley Investments and Chinese company Citic, lost about two-thirds of their investment.

Rising transmission charges from Transpower pushed up overall power bills by almost 5 per cent in the June quarter, according to recent Statistics New Zealand inflation figures.

That came in before the winter cold period when power use typically doubles.

Another factor pushing up power bills is an expected 3c a unit rise in generation costs, based on “hedge market” prices - contracts which lock in wholesale power prices for big players, including power companies themselves.

Independent energy consultant, Bryan Leyland recently said the electricity market had driven up prices for the last 10 years and that would continue regardless of ownership.

BusinessDay.co.nz