Privatisation of Power Companies Marches Forward Under Bill

April 15, 2012 Updated: October 1, 2015
Epoch Times Photo
The Benmore dam and Power Station in the Waitaki Valley, North Otago. The government is proposing to sell 49 percent of four state-owned energy companies, including Meridian Energy. (Michael Bradley/Getty)

Privatisation of four state-owned energy companies is meeting with heavy opposition from the public despite the government having announced its intention before the 2011 elections.

People will be disenfranchised twice under the Government’s move to privatise the industry, says Molly Melhuish, an independent energy analyst for consumer and environmental groups.

Firstly by the Electricity Authority’s interpretation of the law during the regulatory process and secondly by the government’s claim to have a mandate when it enjoyed “a majority of one (seat) in an election in which the voter turnout was the lowest since 1887,” she says.

Under the government’s proposal 49 percent of the shareholdings of four state-owned energy companies (SOEs)—Genesis Power, Meridian Energy, Mighty River Power and Solid Energy—will be sold. The power suppliers would then operate under a mixed ownership model.

Submissions to the Mixed Model Ownership Bill, allowing the partial privatisation of the SOEs closed last Friday.

The proceeds from the sale would be used to invest in future assets and reduce the need for further borrowing, says the government.

However, privatising essential infrastructure assets is seen by many people as benefitting only the power suppliers and industrial consumers.

Molly Melhuish works with Greypower, one of New Zealand’s largest non-government organisations that lobbies on behalf of senior citizens. Greypower’s submission opposes the government’s Mixed Ownership Model bill in its entirety.

The new regulation will lock in the existing regulatory system, says Ms. Melhuish.”[It] specifically protects investors and specifically refuses to distinguish between domestic and industrial consumers.”

“This is extraordinary legislation … to say that it is okay for domestic consumer prices to rise so long as non-domestic consumers get cheap power.”

Ms. Melhuish believes that internationally New Zealand’s electricity market was already the most liberal market in terms of pricing. However, the latest regulation takes this a step further by protecting the investors.

The regulation has been interpreted by the Electricity Authority in a way that puts industrial and domestic consumers into a single category thus allowing large consumers to receive discounts and domestic consumers to pay higher prices, she says.

The Electricity Authority regulates the electricity industry. It is an independent authority with a board appointed by the ministers of the present government. It is not accountable to the government but makes its own decisions, says Melhuish.

The Electricity Authority Consultation Charter states that “ill-founded amendments can undermine investor confidence” and there should be “greater predictability about decision-making on likely amendments to the Code to maximise investor certainty.”

“It is a remarkable statement. I don’t think there is any precedent anywhere in the world,” says Melhuish. “They’re protecting industry participants … anybody who trades on the wholesale market.”

Any amendment to the regulatory system that could affect the value of assets would result in a demand for compensation from the private owners, she says.

“We want to re-regulate because the continuing price rises are causing real social and economic hardship.”

Prices for domestic consumers in real terms rose by 73 percent between 1991 and 2010 and only 11 percent for industrial consumers.

“We have recently heard that there is a significant increase in disconnections for not paying the bills. We know from Greypower that people are not heating their homes enough; people are going to bed early, which is bad because it keeps them immobile and hurts their circulatory system. There are people, for heavens sake, who are so frightened of paying their power bills or of getting disconnected that they don’t buy enough food for their families,” says Melhuish.

Rising electricity prices also take away people’s discretionary spending. “So they don’t go to the coffee shop, they don’t go out for trips, they don’t go out in their car-they can’t afford it,” says Melhuish, adding that is should be remembered that spending money in the local community for services also encourages economic growth.

Adam Bennett, writing in the New Zealand Herald last Wednesday, noted that under the proposed changes, the government also planned to remove their obligations under the Official Information and Ombudsman Acts.

Chief Ombudsman Beverley Wakem was reported as warning that “a valuable part of the democratic process” would be lost if the government was successful in blocking partially privatised power companies from public scrutiny on grounds of commercial sensitivity.

The Ombudsman’s office handles complaints against the Government.

Green Party co-leader, Russell Norman, says that the privatisation of the power companies will lead to higher taxes … and possibly higher electricity prices.

“The government will lose the dividend streams from these companies because (its) books will be in a worse position.”

He says that companies that are now owned by all New Zealanders will end up being owned by just one percent of the population as few people could afford to buy shares.

“If they use money they get from these sales to avoid taking on debt then we are actually worse off because we can borrow it at 4 percent whereas these companies-the total shareholder return is about 18 percent-so the return we get from the these SOE’s is greater than the cost of capital to the crown,” says Mr. Norman.

With the sale of the energy companies, New Zealand would also lose an opportunity to take part in the global clean energy market.

“There is a rapidly growing renewable energy market internationally and these companies, which are currently owned by all of us, provide us with the opportunity to engage with that market and export clean energy technology,” Norman says.