Editorial: Labour could have acted on power prices

Last updated 05:00 16/04/2013

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OPINION: 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.

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.

According to a 2009 Commerce Commission report, wholesale prices charged by the four big power generator-retailers - three of them state-owned - were on average 18 per cent higher than they should have been between 2001 and 2007. As a result, the companies earned $4.3b more during that period than they would have under competitive conditions.

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.

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.

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.

Having said all that, Mr Shearer's pledge to bring down power prices should be a reminder to those considering buying MRP shares that no investment is ever 100 per cent certain.

Future changes in regulations and market conditions are risks that must always be carefully considered. Yes, the value of shares can go up but, as those stung by the drop in property prices in recent years can attest, the value of investments in any sector, commodity and asset can also fall.

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Many of the 440,000 New Zealanders who expressed an interest in MRP shares will be first-time investors in the stock market. Those who are should be absolutely clear about what they are getting into, and that means knowing the potential pitfalls as well as the benefits.

The prospectus clearly spells out those risks. Nobody should buy shares unless they have read, and fully understood, what they are.

- © Fairfax NZ News

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