Greens, Labour rebuff criticism

21:04, Apr 30 2013

The Opposition parties are staring down a deluge of research reports that have threatened to drown their Pharmac-like solution to high power prices in a sea of numbers.

Credit Suisse (partnered with First NZ Capital), Forsyth Barr - which are all advising on the Mighty River Power float in some capacity - and UBS, have respectively called the scheme "fraught with difficulty", a "hand grenade", and "unworkable".

A Credit Suisse report said the 10 per cent reduction in power cost targeted by the Opposition could be achieved under the current scheme, so "if it ain't broke, don't fix it".

Labour Party finance spokesman David Parker dismissed the analysis, noting that in the MRP prospectus the firm expected sales to increase by $67.7 million to $1.8 billion in June 2014.

Stripping out $12.2m in lines charges, that is an increase of 3.1 per cent for the year in a market where demand is flat - suggesting electricity prices will have to rise.

"You're still left with the position we already have where residential tariffs are three times that of industry," Parker said.

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He also countered claims the model would put a huge dent in the Crown's tax and dividend revenues, saying Labour calculations put the shortfall at $88m on the top end and that was based on the assumption the floats went ahead as planned.

"I would note that even after the news that is said to be so earth-shattering, Contact's share price was higher than it was last year," Parker said.

Contact was last trading at $5.37, down from $5.82 before the announcement was made last week, but towards the top of the $4.73 to $5.54 trading band seen last year.

Parker also referred to the report written by economist Frank Wolak for the Commerce Commission in 2009, which said the country's four major "gentailers" had extracted billions in excessive profits from the market between 2001 and 2007.

The Greens, meanwhile, called the motives behind the reports into question, with energy spokesperson Gareth Hughes noting that many of the same investment firms had a stake in the float of Mighty River Power and the other state-owned electricity companies.

Those floats, and the sector's profitability, were threatened last week after Labour and the Greens vowed to break up the current wholesale electricity market if they win the next election.

They would replace it with a single buyer that would pay a variable rate to generators based on underlying electricity production costs, which promises to cut household power bills by between $230 and $330 a year.

The Greens said they would be taking their version of the proposal on the road to source industry feedback.

"We're talking about a two-year implementation timeline, and we're trying to get the best advice we can from official experts and the public in delivering cheaper prices," Hughes said.

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