Labour-Greens power policy could work, says Vector CEO Mackenzie

The electricity policy announced by the Labour and Green parties could be made to work and the current debate is overly emotive, says the chief executive of the regulated monopoly electricity and gas network owner, Vector [NZX:VCT].

Simon Mackenzie told BusinessDesk he was encouraged by the fact the proposed central purchaser system would incentivise commercially rational investment in energy efficiency, and that the opposition parties were not pursuing direct subsidies.

He also welcomed the fact Labour was proposing to simplify regulation of lines companies, which has become enmeshed in the courts after policies Labour implemented was "not tracking as was intended", Mr Mackenzie says.

There was "no perfect model" for electricity systems, and other countries used similar methods to set prices and to procure investment in new power plants as demand rises.

At present, new generation is procured by competing generators identifying the "next least-cost" of new generation and deciding to build it.

Under the Labour-Greens model, a central buying agency and market regulator, NZ Power, would tender for new generation capacity.

"There's competition for providing that next plant," said Mr Mackenzie, who stressed he was "not taking political sides".

"The model is used in other jurisdictions. It has its pros and cons. It's made to work."

Took some convincing
Labour's regional development spokesman Shane Jones told BusinessDesk he had taken some convincing to abandon the market model which Labour presided over during its nine years in power from 1999.

But he was convinced lower-priced electricity would create jobs in energy-intensive regional activities such as the timber industry.

The Labour-Green policy would deliver an "equity dividend" for New Zealand households and businesses by removing some of the profits made by power companies.

"Not only asset owners need dividends," he says. "Politicians need dividends as well."

To win the 2014 election, Labour needed to move about 5 to 7 percent of the voting public to favour it.

He suggested energy analysts' capacity to "make 5 to 7 percent of the public hate us [because of this policy] is zero. Our capacity to impress that percentage [with this policy] is infinite."

Mr Mackenzie says the policy is "focusing on small-scale generation, energy efficiency and how that works in the market not through subsidies".

He was defensive about generator-retailers trying to "pass the parcel" on rising power prices to lines companies.

Increased national grid transmission charges, reflecting a multi-billion upgrade by state-owned monopoly grid owner Transpower, are one reason electricity prices are forecast to keep rising in coming years.

Local network charges have also been rising, although the Commerce Commission has ordered deep cuts in charges on some networks, including Vector's.

Contact Energy CEO Dennis Barnes has questioned whether the company would have invested $2.5 billion on new geothermal and gas-fired generation plant in the last five years if the Labour-Green policy had been in place.

Shares of Contact Energy have fallen about 10 percent in the day since the policy was announced, leading to expectations the policy announcement has effectively cut the issue price for shares of state-owned generator-retailer Mighty River Power shares, 49 percent of which are being offered to the public ahead of a sharemarket listing scheduled for May 10.

The other NZX-listed generator-retailer, TrustPower, has fallen 6.8 percent today to break through its previous 52-week low of $7.20 to trade just after noon at $7.05. TrustPower's 50.5 percent owner, Infratil, has fallen 2.6 percent to $2.27.

Contact, Infratil and TrustPower are leading falling stocks in trading today.

(BusinessDesk)