National's asset sales would mean higher power prices

National’s asset sales programme would remove the anchor that has held down electricity prices and given us some of the cheapest power in the developed world. Asset sales would mean higher power prices.

Private power companies charge more than publicly-owned ones and partially-privatising our public power companies would only drive prices up further for everyone, Green Party Co-leader Russel Norman said today.

On Q+A yesterday, Tony Ryall denied that private electricity companies charge more for electricity than the publicly-owned SOE electricity companies saying, "I've seen those numbers that have been quoted by the Green Party in that case, and what's clear in that is there are a number of private companies that are cheaper than the state companies." However, Ministry of Economic Development figures (see table below) show that each privately-owned company is more expensive than each publicly-owned company, with the tiny exception of Nova Energy.

"Mr Ryall needs to look again," said Dr Norman.

"On average, privately-owned electricity companies charge 12% - 3 cents per kilowatt hour - more than publicly-owned electricity companies.

"That's around $275 a year more for the average household.

"The reason is simple - private investors have a higher cost of capital than the Crown, so they need bigger profits to make a return on investment.

"If National pushes ahead with asset sales, our publicly-owned power companies would be legally obliged to meet the interests of their private shareholders and increase their profits by lifting their prices.

"The demands of private investors would force our public power companies to charge higher us more for electricity," said Dr Norman.

There is evidence that the publicly-owned power companies also force the private companies to charge lower prices than they would prefer to remain competitive - Contact CEO Dennis Barnes recently said that prices need to rise for private investors to make a profit, and Trustpower has accused Genesis of not making a commercial return saying, "no wonder you're charging such cheap prices."

"If asset sales go ahead, the partially-privatised companies would lift their prices and that would allow the private companies to lift their prices even higher," Dr Norman said.

"National's asset sales programme would remove the anchor that has held down electricity prices and given us some of the cheapest power in the developed world.

"Asset sales would mean higher power prices," said Dr Norman.

Additional information:

Report of Barnes' comments at Downstream energy conference in March

Commerce Commission report on the electricity market, 2009 - including reference to an incident where a Trustpower executive accused Genesis of not making a commercial return saying "no wonder you're charging such cheap prices" (p122)