Opposition proposals threaten 'Telecom-style' shake-up
AMP Capital Investors (New Zealand) has yet to establish its response to the opposition political parties' plans to overhaul the electricity market, but says it could destroy shareholder value in the way Labour did to Telecom in 2006.
The Labour and Green parties last week unveiled plans to introduce a central buying agent and regulator for wholesale electricity if it wins next year's election, spooking power company investors and prompting the government to put out an update on the risks to its initial public offer of state-owned Mighty River Power.
The fund manager is "still forming views" on the proposal and hasn't decided "what role we're going to take in the process," head of equities Guy Elliffe told reporters at a briefing in Wellington.
"We do regard this very seriously. It's important we have a very important, high-level and rational debate about a complex issue," he says.
The share price in Contact Energy has dropped 6.3 percent to $5.36 and TrustPower has fallen 6.9 percent to $7.26 since the announcement, which Mr Elliffe says was probably a reasonable indication as to how market analysts are trying to work out the present value of those changes.
"If you look at the actual quantum of the changes in value of the listed companies, it is pretty material," he says.
The potential intervention, which would probably take more than a full electoral term to come into effect, could have as great an impact as that enforced on Telecom in 2006, when Labour's communications minister David Cunliffe forced the phone company to offer equal access to its underlying copper lines in a bid to encourage more broadband investment.
That intervention saw Telecom's share price sink 26 percent from the start of May 2006 when the announcement was made to the end of June, when the phone company split up its wholesale and retail operations.
"In terms of potential risk if the policies were enforced, the Telecom analogy is not a bad one," Mr Elliffe says.
He questioned whether any drop in retail prices would be sustainable as demand for electricity draws in line with supply.
"Will prices be lower under the revised system? I think initially the answer's clear: yes. But on a longer term basis, to me it's far less clear. The argument revolves around the efficiency of the investment signals the new system will provide."