Labour's Parker affirms plan to regulate power market, stamp out 'super-profits'

Thursday 16th January 2014 2 Comments

A Labour-led government will make good on its promise to regulate the electricity industry and stamp out 'super-profits', a threat that has weighed on power company stocks, deputy leader David Parker says.

Labour and the Greens unveiled plans to overhaul New Zealand's electricity market on the eve of the government's MightyRiverPower selldown last year. The operator of nine hydro stations on the Waikato River has traded below its $2.50 IPO price since just after the sale last May. Meridian Energy, sold in October, is hovering around its listing price.

The opposition parties want to create a single, state-owned power buyer and a restructured pricing model, to eliminate excessive power company profits and pass savings onto consumers through cheaper electricity prices.

"A wise investor will be aware if the pricing model changes, in this case to stop the profiteering of public rivers, that will change the companies' profits," Parker, who would be finance minister in a Labour government, told BusinessDesk.

"Investors are already discounting those stocks because of what might happen if we win," he said. "It's actually a good example of how the market works."

Labour still has some work to do if it wants to take the Treasury benches off National. A Herald on Sunday poll published on Jan. 5 still has a National-led coalition ahead with 62 seats in the 124-seat parliament, to a Labour grouping on 59 seats, potentially leaving the Maori Party as kingmakers.

Investors have already assessed the threat. The New Zealand stock exchange energy group index, which includes all listed power companies along with Z Energy and NZ Refining, has dropped 9.6 percent in the past 12 months, while the NZX 50 Index has rallied about 17 percent.

"Some people just won't touch them because they are scared of a Labour-Greens government," said Mark Lister, head of private wealth research at Craigs Investment Partners. "Others say because they're dirt cheap people are pessimistic. If National got re-elected they'd go up again."

A potential change of government may pose risks to other sectors as well, he said.

"Regulatory risk is weighing on those sectors which could be in for attention from a Labour government," Lister said. "The market is aware of the sectors susceptible to regulation - SkyCity, the electricity sector and Chorus have a cloud hanging over them, which will continue to the election."

Parker said while a Labour government "wouldn't be tearing down any convention centres" the SkyCity Entertainment Group deal to build Auckland's convention centre in exchange for gambling concessions was "built on the back of a deal with the current government that we don't agree with."

SkyCity's shares have lagged behind the NZX 50 in the past 12 months, rising just 1.8 percent. Chorus has tumbled 44 percent.

Parker said the Commerce Commission decision on Chorus was "the regulator applying the law." He wouldn't comment on whether a Labour government would impose further regulation on the network operator.

BusinessDesk.co.nz

Comments from our readers

On 16 January 2014 at 2:13 pm Max Percy said:

How any business person or kiwi that wants the NZ economy to grow could vote for that lot after what Mr Parker has just said defies logic. Even worse why anyone investors outside of NZ would even contemplate investing in NZ when you have a potential Government that appears not only not to understand economics but also can't be trusted or have the foresight to see the damage such actions as above have on investment in NZ. It is almost as if Labour go out of their way to to show the world just how inept they are. Throw the Greens into the mix and it doesn't warrant thinking about the monster that would be created in regards to the Treasury. Is it any wonder that throughout history in NZ politics that Labour have only had a very short time in Government?

On 16 January 2014 at 6:49 pm Jeremy D'Herville said:

A blue-green environmental regime may end up developing in a more stable, incremental and more inclusive manner than the relationship it had with Labour. Environmental laws in something as monstrous as the TPP need to remain as they are, undeveloped and tailored to fit independent localised priorities. Not turn it into some ridiculous superfund one-size-fits all bastardisation of working class private ownership and independent human rights. Allow for benefits and opportunities that spread wide and more evenly across the economic spectrum.