Greens/Labour electricity plan already scaring off investors - Joyce

National’s economic development minister Steven Joyce has told TV One’s Q+A programme that Labour and the Green’s electricity plan will scare off investors.

“They're talking about telling the generators when they can generate, which generating assets they can use, which ones they can introduce to the markets. So nobody would invest on that basis,” Mr Joyce told political editor Corin Dann.

The minister said evidence of this was seen “on Thursday and Friday when the market dropped nearly $600 million across three companies because they said, ‘Jeez, we’re not interested in this”.

“I can tell you for free that right across the energy sector, right across the investment sector in NZ, they are saying, ‘We’d actually do less investment in jobs and growth in the NZ economy.’”

“That’s where the debate will be, and we will be in favour of jobs and growth and competitive markets, and these clowns will actually cause real problems for the NZ economy,” Mr Joyce added.

Last Thursday, Labour and the Greens announced the formation of a Pharmac-style single-buyer agency called NZ Power if they won the next election. NZ Power would buy electricity generated at wholesale level at what it deemed a fair price and pass on these savings to consumers through retailers.

The Greens say consumers would be given 300 kilowatt hours per month at a reduced rate, about two-thirds of the current price of a kilowatt, and anything over that would be at normal retail company prices. This would save most consumers between $230-330 per month on their power bill. The average household uses around 700 kilowatt hours per month.

Mr Joyce said the government had halved electricity price increases through the formation of the Electricity Authority in November 2010.

The Labour-Green policy has also been criticised by ACT Party President and ETS spokesman John Boscawen.

The parties' "scheme to nationalise the electricity sector because they ‘care’ about power prices is hypocritical when they were responsible for introducing an Emissions Trading Scheme which pushed up the price of power," Mr Boscawen says.

Parker: timing right
Appearing on the same programme, Labour’s finance spokesman David Parker has told TV One’s Q+A programme that it and the Greens were right to announce their electricity policy ahead of the Government’s share float of 49% of Mighty River Power.

Mr Parker told political editor Corin Dann that power prices had gone up by 70% more than inflation since National’s Max Bradford electricity industry reforms in 1998. “They’ve gone up over and above inflation by $700 for an average family in a year. It is out of control.”

“If we hadn't actually announced this now and we'd let these share floats go ahead and then we told people this, they would rightly have criticised us for actually not being explicit at the time when people had a choice to buy shares. People have a choice to buy shares. They don't have a choice about paying a power bill. So, you know, we're unapologetic. We think that this is wrong at the moment, that consumers are being overcharged, and we are going to fix it.”

Labour and the Greens announced the formation of a Pharmac-style single-buyer agency called NZ Power if they won the next election. NZ Power would buy electricity generated at wholesale level at what it deemed a fair price and pass on these savings to consumers through retailers.

The Greens say consumers would be given 300 kilowatt hours per month at a reduced rate, about two-thirds of the current price of a kilowatt, and anything over that would be at normal retail company prices. This would save most consumers between $230-330 per month on their power bill. The average household uses around 700 kilowatt hours per month.

Mr Parker told Q+A NZ Power would “average the price of some of our cheap electricity, like hydro, with the more expensive electricity from, say, gas into the market.”

Watch the interview with Steven Joyce here; with David Parker here.

RAW DATA: Q+A TRANSCRIPT - CORIN DANN INTERVIEWS STEVEN JOYCE

CORIN DANN

I’ll come now to Economic Development Minister Steven Joyce. Electricity prices have been increasing far greater than the rate of inflation for a long time now. They still are. We have to do something to stop-

STEVEN JOYCE - Economic Development Minister      

Well, actually, weirdly, the time was when Labour was in. I mean, these are not-

CORIN            But they still are now.

STEVEN         No, no. Let's take you through it. These are not the people to trust with your power prices, because the vast lion's share of power price increases occurred after Labour had a crack at trying to change the regulation model in electricity in 2002. And then they had periods every year of massive price increases from 2002 to 2009. It actually took Gerry Brownlee to come in, tidy the whole thing up, introduce the Electricity Authority, sort the thing out. And, actually, the price increases have halved and less than half now than what they were.

CORIN            Still five per cent last year, though, and inflation was at 0.9 per cent-

STEVEN         Yeah, but the bulk of that was actually distribution. And if you look at distribution, it's about 40 per cent of the cost. So, the lines to get it to your house and the lines to get around the country are about 40 per cent of the cost. Labour aren’t proposing to touch that, so presumably that's the same. So we're talking about the generation cost, which is about 30 per cent So, firstly, these guys can't be trusted. They've got form. Secondly, these are the same guys, including the Greens, who were sitting out there saying they’d like an ETS (Emissions Trading Scheme) - and the ETS would be at least double the impact of the ETS that we've got today, which would push prices up further. So what they're saying on the one hand is we’ll give you with one hand a bit of a cheaper electricity deal if this thing works, and it won't, and on the other hand, we’ll take more of you. They're talking about a $50 a ton carbon price, as reported by the Greens in response to the Prime Minister's speech this year, which would cost $400 or $500 a household. So they’re saying, ‘We’ll give you $270 on the one hand, and $400 or $500-‘

CORIN            Ok, the issue here, though, Minister, is about competition, whether there is competition in this market-

STEVEN         And there is.

CORIN            Well, the five big retailers basically control over 90 per cent of the industry, and the implication is that they are working as a cartel.

STEVEN         So five generators is not competition? Well, that's an interesting test, because on that basis, nobody in NZ is in competition, therefore we should probably actually turn the whole place into a pile of shipyards. So, here's the second issue. It actually doesn't work. And David Parker looked at it in 2006. He took a paper to Cabinet, and the Cabinet said, ‘No, actually, this won't work.’ The reality is the prices- It actually said quite clearly the cost of generation, the cost of doing this, actually would push the whole cost up. If you look at the areas where it's been done, which is quite interesting, because I said on Thursday that it was like a North Korean economic solution-

CORIN            Which was pretty extreme, wasn't it? Come on, I mean, that was-

STEVEN         No, it’s not. By definition, it’s socialism. They are not just talking about the price. This is the joke of it. They're not talking about the price; they're talking about telling the generators when they can generate, which generating assets they can use, which ones they can introduce to the markets. So nobody would invest on that basis.

CORIN            Sure. But just a second. There is a clear problem here. We’re hearing from analysts that these companies can effectively put maintenance into their systems so that they can withhold supply, push up the price, that the hydro guys can get 10 times the amount of what they are producing. That can't be fair.

STEVEN         No, that's not right. It's all about the quality of the regulator, and, actually, we've got the evidence. We've put in place. We've lowered the increases dramatically-

CORIN            Are they still doing that, though? Are they still withholding supply?

STEVEN         Well, I'm not aware of the details, but I can tell you in terms of what the consumers are seeing, we've got inflation down to 1 per cent so you either say to yourself, ‘Do I trust Labour and the Greens, who have cost-plus approach to these things, who left inflation at 5 per cent when they left office? Or do I trust the National Government, which-?’

CORIN            But that is a key issue - trust. Because your argument, really, is just wait. Hang on a second. It's coming right. That's what Simon Bridges was saying after this.

STEVEN         No, it’s not, actually. It's literally working better as we speak today.

CORIN            But it's still 5 per cent So for the pensioner who is on a fixed income. They've got a 5 per cent increase in their power bill. Inflation is at 1 per cent. That's a big chunk of their costs.

STEVEN         I’ll come back to it again. It's literally 1 per cent. Now, you look at some of the examples internationally. You criticised me on North Korea, but that's what it is. It's socialism. So you go out and say, ‘Ok. South Korea.’ That's one of the examples which was thrown at me after that comment on Thursday. South Korea, their company which they have does this has lost money four years in a row, has got power shortages, has been selling electricity at less the cost of production, because that's actually been by government fiat, and they are in trouble now, and they've got to solve the problem. Texas is another example that they've used. In Texas, they've just announced they are putting up wholesale prices 50 per cent in a desperate attempt to encourage people to generate electricity in Texas. These are poor models by comparison to the NZ model. No model is perfect, and you do have to work hard on the regulator. And I very much believe in strong regulation to keep prices down for consumers.

CORIN            So where do consumers end up now? Can you guarantee that prices aren't going to keep going up at 5 per cent a year?

STEVEN         No, you can't, but this is actually a much bigger issue, frankly, than just talking about electricity generation. This is an issue of confidence in the economy, and I actually think that's by far the bigger issue that we are talking about here. Now, David Parker wishes all that away. He says companies like Contact will just cope. Well, I tell you how they cope. They stop investing in the NZ economy-

CORIN            Now, I want to-

STEVEN         No, no. It's very important that we get to this point.

CORIN            Sure.

STEVEN         Very important that we get to this point, because this is actually the crux of the thing. The important point is that you need investment and jobs and growth in the NZ economy-

CORIN            Why would they stop investing?

STEVEN         Because reality is if you're being told what you can earn, what you can invest in-

CORIN            Yeah, and you're going to be told you can earn a nice long-term, guaranteed income stream from NZ Power.

STEVEN         No, absolutely not. I tell you, they'll be out. They'll be out in five minutes.

CORIN            That means you can then say, ‘Right. I know for the next 20 years I’ll be delivering a 5 per cent-

STEVEN         Well, don't listen to me. Listen to the evidence on Thursday and Friday when the market dropped nearly $600 million across three companies because they said, ‘Jeez, we're not interested in this.’ And its broader than that. As you know, JBWere came out yesterday and said, ‘We’d invest less in the NZ economy.’ I can tell you for free that right across the energy sector, right across the investment sector in NZ, they are saying, ‘We’d actually do less investment in jobs and growth in the NZ economy.’ And that's where this will be fought, actually, because the Labour Party don't understand that. When they were in office, they did a whole bunch of things which actually slowed down, they left a moribund sharemarket. They said, ‘These people will cope with these things.’ And what happened was that we had much less job growth in NZ, and we went into recession because their silly economic policies like this one actually froze out investment. That's where the debate will be, and we will be in favour of jobs and growth and competitive markets, and these clowns will actually cause real problems for the NZ economy.

CORIN            Economic Development Minister Steven Joyce, thank you very much. I want to come back to David Parker on one point. Are you going to scare off investors? JBWere have said they want to go. We've had Doug Heffernan suggesting that he wouldn't have spent $1 billion if this policy was in place.

DAVID PARKER - Labour Finance Spokesman

                        There’s a 170-page World Bank report showing that the going to tender for the next power station is competitive. Can I just also say that one of the nonsense arguments from the minister then was that somehow carbon pricing will make these price-  Well, actually, it's exactly the opposite, and you should understand that. Because at the moment, you price hydro in, there is no price of carbon-

STEVEN         You want to take with one hand and give with the other.

CORIN            Gentlemen, we have to leave it there. This is a fascinating debate. I think we're going to have a lot more on it. Thank you very much, David Parker, Labour’s Finance Spokesman. Economic Development Minister Steven Joyce, thank you very much.

RAW DATA: Q+A TRANSCRIPT - CORIN DANN INTERVIEWS DAVID PARKER

CORIN DANN

The Electricity Authority this week said in its report on the system that there was increased competition in the industry in generating and in retailers. So what is the problem here? Why do we need to change?

DAVID PARKER - Labour Finance Spokesman

NZ has some of the cheapest generation in the world in our hydro, and yet consumers don't see it. We've now got the highest differential, the difference between industrial and residential users. Residential people pay three times the price of industrial. Prices have increased by far higher than inflation, and so we-

CORIN            But do we have competition or not? Because we've got five big players here. They are competing, and there are others in the system. What's the problem?

DAVID            No, we've got very inadequate competition. It's very hard to make any electricity market competitive, and ours isn't sufficiently competitive, and that's why prices just keep going through the roof for consumers.

CORIN            So you want to set prices?

DAVID            We do at the wholesale level. We think that it's ridiculous that we price hydroelectricity at the same price as gas. What we're saying is those things should be averaged into the market, and then the central buyer - which won't make a profit or a loss - it'll pass all these costs on to consumers through retailers - and we will have a very competitive retail market, which we haven't got currently.

CORIN            This is a central buyer that you said in 2006 would lead to investment proposals being put on hold. Direct implementation costs could be huge.

DAVID            That’s right, and that's actually why we didn't do it at the time. It is true that during the period of reorganisation - and it takes two years - you have investment uncertainty, and so people don't invest in more generation. At the time, we had perilously thin generation margins. It was being reported to Cabinet every week, and so we couldn't do it then. We haven't never been satisfied, though, that National’s Bradford reforms ended up with fair prices.

CORIN            Isn’t the issue here that for many, many years under your government, when prices rose 72% under Labour, you were paying-?

DAVID            Under the Bradford model, yeah.

CORIN            But you were paying for a lack of investment in infrastructure from years gone by. There was a catch-up. We've reached that now, and if we look at the last couple of years, prices are starting to level off. The Electricity Authority is saying we've got competition.

DAVID            They’re still going up at twice the rate of inflation. You tell me another market where you have to have a government agency going out and telling people through ‘What’s my Number?’ or whatever the campaign is that you're being boned for your prices. You should change to someone else. I mean, isn't that evidence of lack of competition rather than evidence of competition?

CORIN            But we've also got a system where we are seeing lots of investment. We're seeing investment in clean energy, the likes of Mighty River Power, geothermal, all those sorts of things, all those incentives. The market is incentivising all those companies to invest, so we don't have any security of supply issues.

DAVID            Actually, the single-buyer model rates really well under security of supply once you've made the transition. Actually better than the current model. So I think that's not a big issue. The reality is at the moment we've got all this cheap power in NZ, and the value of it is capitalised into the generators’ balance sheets, and New Zealanders who should be paying less don't. Now, we've said that we are going to change this. People will be $230 to $330 per annum better off as a consequence, because their power bills will be lower, and we think that's fairer.

CORIN            So essentially you're saying there's a transfer of wealth here from those people who have invested in those energy companies, and the government included, who are making those profits. You're going to take that money and give it to the consumers.

DAVID            Just because people got away with charging excessive prices yesterday is no excuse for allowing them to do it tomorrow. We heard the same excuses with Telecom until they were brought to heel for their excessive pricing in the telecommunications space. Look, the Americans don't put up with this nonsense. People say markets are good. Actually, that's shorthand for ‘competitive markets are good.’  Uncompetitive markets are bad because they are predatory of the people who pay the bills, and they actually misallocate resources within the economy and your economy doesn't go as well.

CORIN            I’m going to pick you up on that, because you guys were quoting Professor Wolak, who was saying super profits, $4.1 billion, were gouged out of New Zealanders. But he's also said on Radio NZ this week that high-level regulation stipulating the price of electricity was tried in the United States and were found wanting. He was saying it didn't work.

DAVID            Yeah, well, we're actually not regulating the retail price, and that's one of the things that the government’s been asserting which is incorrect. We are averaging the price of some of our cheap electricity, like hydro, with the more expensive electricity from, say, gas into the market and then creating-

CORIN            But you've still got to rely on bureaucrats setting the price, though, don't you?

DAVID            Separating the retail arm from the generators and having genuine competition in retail. So the idea that we're not going to have a competitive market at all levels is a nonsense.

CORIN            But you do have to rely on a new organisation having the nous, being clever enough to predict those price signals. What evidence is there to suggest that they will be able to do that?

DAVID            Look, it would be very hard to have something worse for consumers than the current model. You know, these prices have gone up by 70 per cent more than inflation since Max Bradford said power prices would go down. They've gone up over and above inflation by $700 for an average family in a year. It is out of control. If National has its way, it'll continue to go out of control. They're telling us this is Stalinism. If we hadn't actually announced this now and we'd let these share floats go ahead and then we told people this, they would rightly have criticised us for actually not being explicit at the time when people had a choice to buy shares. People have a choice to buy shares. They don't have a choice about paying a power bill. So, you know, we're unapologetic. We think that this is wrong at the moment, that consumers are being overcharged, and we are going to fix it.

CORIN            All right, David Parker.