Farrar wrong on renewables

As you might have caught we have (alongside Labour) announced a plan to cut excessive profits from the Electricity Sector and return the money to households. David Farrar over on Kiwiblog yesterday posted about the total cost of Electricity Production claiming that renewable options – which we prefer are more expensive than coal and gas. He based his claim on data from a blog advocating for more Nuclear Power in the USA. While he claimed not to be able to find any New Zealand data, and possibly couldn’t, we have found the following.

 

Graph of operating costs of price of existing generation showing renewables are cheaper

Source: https://www.greens.org.nz/energy

As you can see in the New Zealand context current generation the renewable generation is on average cheaper.

If we look at building new generation then we can see a similar picture. This, of course, ignores that there are many energy conservation measures that would be cheaper before we even think about commissioning a new plant.

Graph showing for new generation up to 1400MW renewables are cheaper.

Source: New Zealand Energy Strategy to 2050

This is why we are happy to advocate for renewable generation. It is cheaper, and will not further destabilise our climate.

154 thoughts on “Farrar wrong on renewables

  1. My main question from today’s announcement is how will you fill the void left by the reduced dividends. Metiria stated “The costs of selling our assets would go on forever. The sales would leave a $100m a year hole in the government’s books, long after the revenue is gone.” Now it seems you wish to increase this deficit further, I can only surmise that there is a tax rise elsewhere to offset this (time to be upfront), or Russel’s printing press will be springing into action.

    Like or Dislike: Thumb up 17 Thumb down 7 (+10)

  2. It’s hard to know where to start with this policy, but I’ll just drop this here:

    stuff.co.nz/national/blogs/bull-dust/8568124/Labours-crazy-new-energy-policy

    You cannot possibly be serious?

    Like or Dislike: Thumb up 18 Thumb down 13 (+5)

  3. Problem is witth your comments Gareth, is that you are quoting the levelised cost of generation. That is only valid for comparing dispatchable power. If you read Joscow, who has actually investigated the economics in detail,then wind is one of the most expensive options. The only way to make it “viable” is by massive subsidies. That is why electricity is so expensive in Europe.
    If you want wind, you can’t have cheap power.

    Like or Dislike: Thumb up 20 Thumb down 4 (+16)

  4. Arana,

    Personally I like the model of nationalising the retailing of power, while leaving energy supply to the private sector. I don’t like these silly pricing games coming from the retail sector. It’s all bullshit that ultimately wastes time and money. We just need (and want) straight pricing.

    If power companies are reigning in massive profits from a given under-supply, then there is an argument for a progressive tax, I believe. It provides a way to control demand (must be done – or you get brown and/or black-outs) but without “gouging” thrifty (poorer) users. It also incentivises richer users to invest in energy-efficiency, because they get higher returns from “taking the cream off the top” of their power bill.

    However, I think we should only look at the former if power companies are reigning in excessive scarcity profits.

    Like or Dislike: Thumb up 3 Thumb down 10 (-7)

  5. The Greens/Labour plan to cut $700m from the $488m profits the power companies made last year.

    The Greens/Labour plan to totally screw anyone who has recently invested their hard earned retirement savings into building renewable power.

    The Greens/Labour think making $488m profit from $9961m in sales (4.8% profit) is massive profiteering.

    The Greens/Labour need to visit their nearest primary school, and get a five year old with experience of running a lemonade stall, to show them that selling something for less than it costs to make it, is not a sustainable thing to do.

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  6. This is great policy. The current “competitive” retail market is in fact wasteful and inefficient. That’s why we are paying much higher prices for electricity recently when in fact there is surplus generation capacity. This will keep a lid on excessive profits and be a bonus for consumers and the environment.

    Like or Dislike: Thumb up 11 Thumb down 19 (-8)

  7. No real surprise that Farrar has been dishonest concerning the cost of renewable energy versus fossil fuel.

    Andrew Atkin

    How does this relate to capital costs? Did you include replacement costs as part of maintenance?

    I believe long run costs include the cost to enter an industry in response to expected profits, which would include the capital and maintenance costs of each industry to undertake production.

    The reduced capital cost and not having ongoing expenses of fuel is likely why renewable energy sources have far better LRMC than fossil.

    Incidentally, large capital costs is one reason why there’s a natural monopoly in New Zealands electricity supply industry. The huge increase in debt levels under this National government is another reason why the general public is overcharged

    If power companies are reigning in massive profits from a given under-supply…

    There’s no question about if they’re making massive profits Andrew. Here’s the earnings before costs (EBITDAF) in 2012 for Meridian Energy = $476.6 million, Mighty River Power = $461.5 million and Genesis Energy = $392.6 million.

    photon

    The Greens/Labour think making $488m profit from $9961m in sales (4.8% profit) is massive profiteering.

    Sales from all electricity companies equaled $9961 million? Pull the other one photon.

    Earnings were over $1.3 billion in one year from just three electricity companies, which makes me think Labour, the Greens and now NZ First’s policy to save each family $300 per year is on the low side.

    Once the next Labour/Green coalition government gets SOE debt to manageable levels again through better economic management, I would expect further saving for the New Zealanders through reduced electricity prices.

    Like or Dislike: Thumb up 12 Thumb down 19 (-7)

  8. I predict rolling blackouts during peak times punctuated by the gentle roar of Diesel and/or petrol generators filling in the gap.

    That’s what happened in South Africa (a great example quoted by David Shearer) when capacity ran out due to lack of investment. The State owned generator then went cap in hand to the regulator to demand increases well above the inflation rate.

    Like or Dislike: Thumb up 17 Thumb down 5 (+12)

  9. Jackal says ” There’s no question about if they’re making massive profits Andrew. Here’s the earnings before costs (EBITDAF)”

    Do you even read what you write????

    Read your second and third last words above ….”before costs”.

    Profit is what you have AFTER costs – not BEFORE costs. Duh!!!!

    You think Meridian made a “massive profit” of $476.6 million. But their AFTER tax profit last year was $74m.

    You think Mighty River Power made a “massive profit” of $461.5 million. But their AFTER tax profit last year was $68m.

    You think Genesis Energy made a “massive profit” of $392.6 million. But their AFTER tax profit last year was $90m.

    (all my figures are after tax profits on 2012 annual reports)

    You really should do something about your ignorance of financial terms if you don’t want to continually make a complete idiot of yourself.

    jackal says “Sales from all electricity companies equaled $9961 million? Pull the other one photon.”

    Revenue figures are
    Contact Energy $2,756m
    Genesis Power $2,482m
    Meridian Energy $2,570m
    Mighty River Power $1,172m
    TrustPower $681m

    Total $9961m (for the five big companies which have 95% of the market)

    From http://en.wikipedia.org/wiki/New_Zealand_electricity_market

    Then laughably, jackal says the Greens/Labour government will bring debt levels down though better management, when they’re going run every company at a loss (which increases debt).

    Jackal – That’s got to be close to a record for the number of own goals in the one post.

    Like or Dislike: Thumb up 28 Thumb down 4 (+24)

  10. gareth

    Why are you quoting LRMC data from a 6 year old energy strategy produced by Labour? You’re not trying to fiddle the figures are you?

    The latest MED data shows wind starting at $93MW and rising to $170. the most expensive LRMC interestingly is renewable solar and renewable tidal…

    Any discussion of wind LRMC has to at least double it because installed capacity never gets close to output so you have to build twice as many wind farms to get the same energy as you would from say a CCGT or coal plant.

    http://www.med.govt.nz/sectors-industries/energy/pdf-docs-library/energy-data-and-modelling/modelling/energy-outlook/electricity-lrmc-model.xls

    Like or Dislike: Thumb up 25 Thumb down 1 (+24)

  11. David Shearer says “The Crown will forgo dividends and tax revenue from the power companies”

    Russel Norman claims this is “completely false and not backed by anything in the discussion document.” ( whoops!!! Greens and Labour are claiming opposite things about the fundamentals of their policy)

    – from Russel Normans press release, which in accuses Joyce of ….disgrace, no ideas, no solutions, completely false, foaming at the mouth, basic inaccuracies, hysteria, failed, childish rant, no answers, no ideas, panicking, lacking ideas, lacking courage, crazy, ranting, ranting…..ALL in just a HALF page press release.

    I think everyone can see who is REALLY panicking and ranting.

    Not surprising when you’ve just come out with a policy that mainstream media is labelling ……”stark, raving, Monster Loony Party mad”

    Like or Dislike: Thumb up 28 Thumb down 4 (+24)

  12. Strategically this could swing against the Greens.

    1- if the AECT dividend payout to around 400,000 Auckland voters ($320 annually) is diluted in anyway (AECT own 75% of Vector) then there could be a backlash. Could well be $300 lower power bill and no AECT dividend payout. Negative result.

    2- If individual kiwiSaver funds are hit due to the provider investing in electricity generating companies. Another layer of New Zealand investment potentially being reinvested overseas.

    3- If voters see this as nationalisation by stealth and think, what next (houses, cars, fuel, water, beer, etc., etc.) After all why stop nationalisation at electricity?

    4- If the green voter that is self sufficient and “off grid” feels unsafe that the nationalisation will effect their independence. These are the people you find at farmers markets and innovators for alternative energy.

    5- If communities that want to be “off grid” are unable to without feeling the state nationalisation policy hindering the development (primarily remote locations like the Chatham Islands but could also be local communities setting up micro generating plants on the street corner).

    6- If older voters remember the days of state control under Muldoon and prior and recall the inefficiencies in state systems. Policy needs to alleviate those fears.

    7- If the 5000 jobs generated is not fully explained on where they are and how they will contribute to the New Zealand economy. Please don’t expect the consumer to take to kindly to another layer of state servants in an already bloated public service.

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  14. Jackal displays financial ignorance, yet again. “What you’re actually saying is that the profit from energy sales for six power companies was $9961 million in 2012… And then you claim this isn’t a huge profit. Pull the other one photon.”

    $9961 is revenue Jackal – which is completely different to profit. It cost around $9500 to build generation, make and supply the electricity.

    Like or Dislike: Thumb up 18 Thumb down 4 (+14)

  15. jackal says “So what you’re saying photon is that Meridian Energy only made $74 million in net profit from energy sales of $2,570 million….

    Just reporting what Meridian says in it’s annual report.

    Jackal says … So what are these companies doing with all those profits from energy sales? ”

    Meridian made sales of just over $2500m

    Costs included

    Operating Expenses as below($2,093m)
    $1375m – running the power station
    $86m – transmission costs
    $404m – distribution costs
    $80m = staff costs
    $148m – additional operating expenses

    Giving an EBITDAF of $476 (what you called profit)

    As EBITDAF is Earnings BEFORE Interest, Tax, Depreciation etc, we then need to take off those items –

    $157m for Interest and financing costs
    $83m Tax
    $202m Depreciation

    There are also numerous other smaller items (both positive and negative), but in the end the after tax profit is $74m, or around 3% – what the left calls excessive profiteering.

    Like or Dislike: Thumb up 20 Thumb down 2 (+18)

  16. jackla says “I made it clear that I was talking about EBITDAF. Why do you think this isn’t the correct figure to use in terms of the estimated savings for consumers?”

    Because that would be incredibly stupid.

    Just because you want to make savings, doesn’t mean the companies can suddenly –
    – stop paying tax,
    – stop paying interest, and
    – stop paying depreciation on their assets.

    You think they can stop paying all these expenses and hand the money over in savings. Duh!

    Like or Dislike: Thumb up 16 Thumb down 3 (+13)

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  18. Jackal says “All you’ve actually proven photon is that the current system is inefficient at turning revenue into net profit.”

    Thanks – you’re saying I’ve proven Green claims of excessive profiteering are false.

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  20. Jackal – now you’re trying to say companies ARE making huge profits and NOT making huge profits.

    Start reading what you write because it’s drivel.

    Jackal says “So why are all you right wingers freaking out about a 7% reduction?”

    Because average after tax profit is 4.8%

    Note the Greens fail to say where the $700m will come from, because they know they’ll never implement such a loony policy.

    Like or Dislike: Thumb up 16 Thumb down 5 (+11)

  21. Why would anyone install solar now?

    This latest policy has completely undermined it. Solar needs energy prices to be high and people need to perceive they will keep rising.

    Like or Dislike: Thumb up 17 Thumb down 5 (+12)

  22. photon

    Jackal – now you’re trying to say companies ARE making huge profits and NOT making huge profits.

    That makes no sense photon… I’ve said no such thing.

    Start reading what you write because it’s drivel.

    As usual you’ve reverted to insults because you’ve once again lost the debate.

    Jackal says “So why are all you right wingers freaking out about a 7% reduction?”

    Because average after tax profit is 4.8%

    Photonz1, the 7% is from revenue, not net profits. You don’t simply deduct the reduced revenue from net profits.

    Note the Greens fail to say where the $700m will come from…

    Did you bother to read that article I quoted from photon?

    that money would come straight out of the revenue streams of power companies

    It’s pretty self explanatory there photon… $700 million in savings for consumers will come out of the $9961 million in revenue, which is a 7% reduction in revenue.

    …because they know they’ll never implement such a loony policy.

    Clearly the Greens plan to implement such a policy along with the Labour party, or they wouldn’t have announced it.

    Are you saying that consumers won’t want increased competition resulting in lower electricity prices and that will cause them to vote National? Don’t be daft photon!

    The latest Roy Morgan poll has the parties that support this policy a whopping 14% ahead of National, and announcements of such popular policy will only continue that trend.

    Face it photon, the neoliberal agenda that you support is nearly at an end in New Zealand.

    Like or Dislike: Thumb up 5 Thumb down 13 (-8)

  23. Arana says “Why would anyone install solar now? ”

    All those who have invested in wind power in the last few years are about to get totally screwed by the Greens. They can say bye bye to their retirement savings.

    Ditto to the 2 million people in Kiwisaver, ACC, NZ Super Fund etc. Over half a BILLION dollars wiped off investments just yesterday and today.

    It’s not just investment in renewable energy that is getting shafted. It effectively puts a giant neon sign up telling everyone interested in investing in New Zealand’s future “Go away, or we might screw you and take your savings”.

    Like or Dislike: Thumb up 17 Thumb down 8 (+9)

  24. Jackal says “Sales from all electricity companies equaled $9961 million? Pull the other one photon.”

    Who better to rip your argument apart, than……er……you….

    Jackal says “Yes! $9961 is revenue from energy sales…”

    Like or Dislike: Thumb up 9 Thumb down 5 (+4)

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  26. That’s about as pathetic as trying to say a 7% revenue change should be automatically deducted from net profits.

    Jackal – photonz1 is pretty much right on this one. In any given operating year, where else would you expect a 7% revenue decline across the market to hit? Operational savings?

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  27. Gregor W

    Jackal – photonz1 is pretty much right on this one. In any given operating year, where else would you expect a 7% revenue decline across the market to hit? Operational savings?

    Photonz1 has argued until he’s blue in the face that it’s going to automatically be taken off the net profits… Harping on like it’s the end of the world. He’s totally ignored the fact that there will be other measures put in place.

    Also, if revenue changes automatically dictate what the net profits are, please explain this:

    Between 2011 and 2012, Genesis Energy’s revenue increased by 23.7%, Mighty River Power’s by 31% and Meridian Energy by 12%. Yet their net profits for the same time period increased 443% for Genesis, decreased 88% for Mighty River Power and decreased 306% for Meridian Energy. Clearly other dynamics including efficiency gains or losses determines a companies net profits.

    These are changes in “any given operational year” so to speak, and clearly show that there’s no direct correlation between revenue changes and net profits for these companies. There are many other factors that determine a companies net profits.

    Now you can agree with photonz1 crystal ball gazing if you like Gregor, but at least provide some details as to why you think a revenue change will cause a comparative change in net profits? I’ve provided information that shows that isn’t the case for New Zealands power companies.

    Like or Dislike: Thumb up 6 Thumb down 15 (-9)

  28. Jackal – I’ll give you a hypothetical example.

    Company X earns $100 dollars revenue (EBIT), but has $90 operating expenses (incl wages, cost of capital, operational maintenance etc). This results in a gross pre-tax profit of $10. After 30% taxes the profit is about $7. Lets assume the company is routinely profitable and has no losses carried forward.

    Next year, company revenues are cut by 7% to $93, but operating expenses remain essentially static @ $90. Pre-tax profits are reduced to $3, $2 after 30% tax.

    A 7% cut in revenues where operating costs remain essentially the same reduces profitability by 70%.

    Though a simple model (not taking into account lots of externalities) it is pretty clear that there is a direct correlation between revenues and profits.

    The only other way to increase profits other than selling more is to reduce operational costs – I suspect the figures that you provided include a lot of financial chicanery (debt-equity swapping, asset revaluation, previous tax loss attribution, write downs, hedging, depreciation etc.) and without deeper analysis beneath those headline numbers, it’s impossible to know how they were arrived at.

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  30. Again, without understanding a companies organisational and debt structure, it’s hard to know.

    Let take your Genesis example.

    Assume Genesis makes $100 dollars in Y1, then $124 in Y2 (24% increase in revenues).

    In Y3 Assuming there 7% decrease is across all powercos (i.e. they all have the exact same proportion of residential customers), revenue drops by $8.70, down to $115.30

    This does not mean there is a revenue increase from the previous year as per your comment above “a reduction of 7% on that increase will leave 16.7%” – it means that over years 1-3 , against a baseline of $100, revenues have increased by about $39 or just under 20% Y.o.Y.

    If the operating expenses of Genesis stayed static (unlikely) at 90%, then (pre tax) profit Y1=$10, Y2=$34(+340%), Y3=$25(-26%).

    Take taxes out @ 30% and you get Y1=$7, Y2=$24, Y3=$17.

    As you can see, increases and decreases in revenue year on year do affect profit – again it’s hard to get a decent picture without looking at long run numbers as opposed to specific years, particularly given the size of the capital investments we are talking about.

    Like or Dislike: Thumb up 12 Thumb down 1 (+11)

  31. jackal says “That’s about as pathetic as trying to say a 7% revenue change should be automatically deducted from net profits.”

    So where will $700m come from then?

    Can’t change the depreciation of assets.
    Can’t change the tax rate.
    Cant’ get the banks to reduce interest.
    Salaries are only a tiny fraction of total costs (3% for Meridian), so negligible reduction there.
    Can’t reduce transmission losses.
    Can’t reduce tranpower’s charges (which is the majority of the reason for recent increases).
    Can’t reduce local lines charges.
    Difficult to get much cheaper prices for new wind generators.

    CAN wipe out the whole profit.

    Where would you cut $700m Jackal?

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  32. Because demand for electricity will continue to grow, even if Tiwai Point aluminium smelter closes, and some applications are better suited to solar, which continues to become more efficient and cost effective. That’s why installed capacity is growing by around 40% per year worldwide.

    But you’re forcing down the price of conventional power, aren’t you?

    Solar installations overseas are largely the result of subsidies.

    You still need near 100% redundancy for solar as you can’t store most of it, and the sun goes down at night, so are you advocating building more conventional redundancy? If so, where will that capital come from? What form will the conventional redundancy take?

    Like or Dislike: Thumb up 15 Thumb down 3 (+12)

  33. Where would you cut $700m Jackal?

    I suspect the answer will be “roads”, yet again. Trouble is, they’ve played that card a dozen times now.

    And we do actually need roads.

    Like or Dislike: Thumb up 16 Thumb down 3 (+13)

  34. Jackal says “You’re overreacting like a drama queen photon.”

    yeah – $600 million loss in two days from Green/Labour economic sabotage is nothing.

    And that’s collateral damage of two companies – not even the prime asset sales target that Greens are trying to sabotage.

    Like or Dislike: Thumb up 10 Thumb down 2 (+8)

  35. Russel Norman just said on National Radio that the Greens plan will mean residential power prices will be 20c kwh.

    That’s 15% MORE EXPENSIVE than what I pay now!!!!!!!!!!

    Like or Dislike: Thumb up 13 Thumb down 2 (+11)

  36. Photo and Arana don’t like it!

    There is a tick of approval right there!

    From those who are supportive of the economic vandalism of artificially high; power prices, exchange and interest rates, and tax cuts we couldn’t afford and artificially depressed wages.

    Of course they will be against repeating the success of SOUTH Korea, in decreasing power prices and increasing investment in their power supplies, with their similar setup.

    Like or Dislike: Thumb up 7 Thumb down 13 (-6)

  37. Kerry wants us to repeat the power supply setup of South Korea.

    That means we’ll have to shift to 45% nuclear power.

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  38. Gregor

    This does not mean there is a revenue increase from the previous year as per your comment above…

    Your argument has been that profits will reduce because revenue will reduce. However even with a 7% reduction in revenue for each power company (not separated out into market share) it appears they will still increase their revenue streams based on the increases in revenue from previous years.

    REVENUES WILL STILL INCREASE EVEN WITH A 7% REDUCTION.

    How on earth can you argue that will equate to a net profit loss? It will simply mean that revenue will not contribute to their net profit increasing as much.

    As you can see, increases and decreases in revenue year on year do affect profit

    I never said they didn’t Gregor. I said that a 7% reduction in revenue won’t greatly affect net profit of the power company’s, which is what photonz1 has argued will occur. You can’t honestly be agreeing with him Gregor?

    photonz1

    Kerry wants us to repeat the power supply setup of South Korea. That means we’ll have to shift to 45% nuclear power.

    Planet earth calling photonz1, come in photonz1.

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  39. Hows this for delusional. By wiping out any chance for generators to make money on electricity, the Greens say they will encourage MORE companies to build new generation.

    When in just two days $600 million is wiped off electricity investors savings.

    That looks like the opposite of encouraging people to invest more.

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  40. Photo and Arana don’t like it! There is a tick of approval right there!

    So, no reasoning, then, just which tribe says what. Sounds sensible.

    Meanwhile, I thought the earnings the state made from power were very important and to “lose” even 49% of them would be simply awful. I also recall the drive was towards saving energy, and to adopt alternative energy, as opposed to consume cheap power, but all that appears to have fallen away.

    Curious.

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  41. photon

    When in just two days $600 million is wiped off electricity investors savings.

    Do you have a link to show that $2 billion $600 million has been wiped off electricity investors savings because of this policy photonz1?

    If that is the case, perhaps it has more to do with National MPs and their propagandists freaking out and saying there will be a huge decrease in profits despite revenues likely to continue to rise more than the $700 million or 7% of revenue the policy targets.

    Investors aren’t usually stupid, and they will realise that the political party’s that support this policy are ahead in the polls by 14%. That means it’s likely to be implemented in 2014, and with National MP’s claiming the world will end if it is, they’re spooked!

    In effect you’re undermining the asset sales agenda and the governments potential return yourselves… Nothing really new there then.

    Arana

    So, no reasoning, then, just which tribe says what. Sounds sensible.

    Kerry Thomas’ comment is perfectly acceptable. You’re a climate change denier Arana despite overwhelming evidence that shows it’s real and photonz1 has never accepted he’s wrong despite numerous attempts to mislead frogblog readers… In other words your reputations precede you.

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  42. Jackal – I wrote big reply but lost this so will try and keep my response brief.

    Your argument has been that profits will reduce because revenue will reduce.

    Yes. Profit = Revenue – Cost.
    Occasionally you can have a situation where revenue increases and profits reduce (due to higher operating costs) or revenues decrease and profits go up (due to lower operating costs).

    However the fundamental rule remains the same. Without a lowering of operating costs, on a declining revenue, profit will decline.

    Furthermore, lowering costs in an industry with high fixed costs like the energy business, is quite difficult. Also, powercos only sell one product so they can’t really diversify.

    However even with a 7% reduction in revenue for each power company (not separated out into market share) it appears they will still increase their revenue streams based on the increases in revenue from previous years.

    Revenue = Price x Units Sold.
    Revenue may well increase as it is a function of demand, but it can only be raised by raising either price or units sold or both.
    So while a company might lose revenue one year it may increase revenue the next, but these result can’t be said to be dependent on each other.

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  43. Jackal asks “Do you have a link to show that $2 billion $600 million has been wiped off electricity investors savings because of this policy photonz1?”

    If you had a even a little basic financial literacy, you’d know how to work out that a 50c drop on the NZX of Contact shares (x733 million shares), and a 62c drop in Trustpower shares (x314 million shares) wiped out over half a billion dollars off investors life savings since yesterday.

    (that’s equivalent to about 500 years of Green Party salaries, of people’s savings, destroyed in two days)

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  44. It is rather amusing reading all the desperate right wing spin.

    Especially the dancing cossacks stuff.

    When we would be following the “Stalinist” States of South Korea and California, among others.

    38% decrease in S Korea power prices against, how much since Bradford said “read my lips power prices will not be rising”?

    Don’t hear any objections from Arana and Photo and the rest of the blogospheres RWNJ advocates of “individual freedom” when National, legalised police spying and propose to give spy agencies unlimited powers to spy on New Zealanders. Like the Stasi, and, wait for it, Stalinist Russia!

    Now please, can Labour and the Greens, build on this proven policy and adopt public banking like the Stalinist state of North Dakota and BCIR like the Stalinist States of Switzerland and Wisconson.

    Meanwhile, Those noted communists the Employers and Manufacturers federation say that lower power prices will help their businesses, and exports, and increase profits, and tax they pay.

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  45. Gregor

    However the fundamental rule remains the same. Without a lowering of operating costs, on a declining revenue, profit will decline.

    That’s a very simplistic explanation Gregor… However you seem determined to ignore the fact that a 7% reduction in revenue doesn’t automatically equate to revenue declining overall for these company’s. Revenue increases each year are more than 7%… Can you at least acknowledge that fact?

    You said you needed more detail, and that detail shows your “fundamental rule” doesn’t apply in this case. Revenue from these companies has increased each year more than the 7% proposed reduction to save consumers $700 million per year, therefore there should be no large reduction in the potential net profits because of this policy.

    Revenues will continue to increase and potentially cause net profits to increase, especially where there’s proper management and efficiency gains are made. However even if there are no efficiency gains, the 7% reduction in revenue will not cause overal revenue reductions… Revenue will still grow. Effectively Labour and the Greens are proposing to slightly reduce the growth in revenue, not cause it to decline.

    There will be 7% less revenue slightly affecting net profits, which are only 4.8% of revenues gained in 2012. But that doesn’t automatically equate to an overall loss in net profits… Comprehend?

    Just to put the fear mongering into perspective, 7% of net profits is 0.3% of revenue. That’s the potential affect on net profits… 0.3% before any likely revenue increases are taken into account. Changes in revenue usually affect all financial operations, not just net profits.

    These power companies can and will manage their operations to ensure they remain profitable under these policy changes. If they cannot, they weren’t viable in the first place.

    Like or Dislike: Thumb up 2 Thumb down 9 (-7)

  46. photonz1

    If you had a even a little basic financial literacy, you’d know how to work out that a 50c drop on the NZX of Contact shares (x733 million shares), and a 62c drop in Trustpower shares (x314 million shares) wiped out over half a billion dollars off investors life savings since yesterday.

    I asked for a link photonz1, not more waffling! I don’t invest in the share market after my family lost millions on black monday.

    The question is whether it’s the policy or the right wings fear mongering that’s causing people to sell shares? It would appear that if you believe your own spin, you’d be selling your shares as well photonz1.

    Like or Dislike: Thumb up 3 Thumb down 12 (-9)

  47. Jackal, please stop using terms like EBITDAF in an effort to give yourself credibility. It is clear you do not understand these terms.

    While revenue has been increasing, costs have been increasing relatively in step. To look at Contact, 2012 revenue was 2,700m. 2011 revenue was 2,230m. Profit was 190m and 151m respectively – very little of that 470m revenue rise ended up on the bottom line.

    If the government is artificially going to force prices down, with no impact on the cost line, profit will fall. Your claim the impact will be 0.3% is financially illiterate – how are you working that out?

    If we look at Contact in 2012 to provide a back of the envelope example. Say the policy is introduced at the end of FY2011. The government drives down revenue by 7%. Due to increasing demand, revenue rises, but not to 2700m, instead it goes to 2511 (so revenues can rise, as you note). But Contact are not interested in revenue – they want profit. EBITDAF is now 320m, not 509m. Operating expense is not impacted, so that stays at 2,192m. D&A of 193m. Assuming interest expense of 71m, and ignoring various adjustments like change in financial instruments (as these are not material), we get to a pre-tax profit of 55m – NPAT of approx 40m. That is not a 0.3% impact.

    A business with those numbers will not attract any kind of large-scale capex. And the case is this – with this policy, either the government will need to stick its hand in its pocket to fund new generation, or these companies will simply use up their assets and not invest. In the longer term, both are bad outcomes for the electricity market.

    Like or Dislike: Thumb up 12 Thumb down 1 (+11)

  48. insider (18 April 11:53pm) shows a lack of understanding of own figures:

    “The latest MED data shows wind starting at $93MW and rising to $170. the most expensive LRMC interestingly is renewable solar and renewable tidal…

    Any discussion of wind LRMC has to at least double it because installed capacity never gets close to output so you have to build twice as many wind farms to get the same energy as you would from say a CCGT or coal plant.”

    The cost of new plant is several million dollars per MegaWatt. The LRMC $93 figure should have units of MegaWatt-Hours, i.e. it is an energy cost. The LRMC of wind energy doesn’t need to be doubled because it already takes into account the capacity factor of the wind farms. Similarly the LRMC of solar power systems is also very high because it too takes into account the capacity factors of typical solar power systems, around 10% for countries like Germany and England, over 20% for sunbaked areas like central Australia.

    Trevor.

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  49. Sorry Jackal. I can’t explain it any better. Any accounting or economics textbook will tell you what I have described.
    A reduction in revenue equals a reduction in revenue.
    Even if revenue rose 100% over a financial year, a 7% drop the next FY means just that; a 7% drop. Profitability will be affected unless costs are cut.

    To reiterate, affects on profit due to falls in revenue are entirely dependant on a firms ability to commensurately lower costs. It’s fundamental economics. In the case of high capital cost utilities like powercos, it is quite difficult to deliver those internal cost efficiencies.

    In a nutshell, the lower your profit is as a proportion of revenues, the more you are affected by revenue shortfalls when calculating future profitability. This is the case with powercos. The options available to cover this shortfall are to increase price, increase volume, reduce costs or a combination of all three.

    Like or Dislike: Thumb up 8 Thumb down 0 (+8)

  50. Jackal says “I asked for a link photonz1, not more waffling!”

    Are you so financially illiterate that you can’t find you way around the NZX website?

    Silly question really – you’ve proved you’ve got no idea of what a profit is. Or the difference between profit and revenue.

    You need to go out and ask a five year old running a lemonade stall.

    And what about this “I don’t invest in the share market after my family lost millions on black monday.”

    Yeah right. Sooooo believable.

    Like or Dislike: Thumb up 9 Thumb down 1 (+8)

  51. Yeah Insider. Lets continue to follow the NZ model where old ladies die of pneumonia because they cannot afford their power bill. Where the Government takes excessive dividends to make the private power companies look competitive rather than admit that it was a mistake.
    Where super profits head to offshore investors. (Photo’s crocodile tears about our retirement investment losses are just that. Most power company shares are held overseas. $2 off my Kiwisaver, if they had any in power companies, against $300 off my power bill. No brainer really).

    No one said we had to copy Korea exactly. Only Photo and Insider assume that. We just gave it as an example of a “capitalist” country with a single desk power buyer when the RWNJ’s started prattling about communism. Horrors!
    Note that S Korea’s power prices, unlike ours, have got so low that they have to raise them to cut demand. FFS.
    RWNJ red herrings, because they know this policy spells the beginning of the end for the neo-liberal burglary..

    Like or Dislike: Thumb up 3 Thumb down 9 (-6)

  52. Why YES Insider. At your link their price for Electricity is in the neighborhood of 11 cents per KWH AFTER the increase.

    It is always good for you free market fanatics to have private owners of anything make money by dint of owning stuff, at the expense of everyone else. Your religion is as predictable as it is disgusting.

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  53. Now, having gone on about that, and being quite pleased to see it as a step towards a rationalized NZ dollar(an entirely separate topic), I am a bit concerned about the other side of this which is the effect on conservation.

    That high price of electricity IS one reason people are willing to pay for more efficient windows and appliances and houses, and an alternative path to that efficiency would I think, be required.

    Like or Dislike: Thumb up 3 Thumb down 5 (-2)

  54. You’re a climate change denier Arana

    I have never denied climate changes. Climate changes. Fact.

    So you appear to be mistaken on that point, among others.

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  55. Lower electricity prices for all? Most people, including me, want lower electricity prices. I’m surprised environmentalists think it’s a good idea, as it appears to run counter to their narrative up until this week.

    The question is “how”. LabGreen’s proposal seems bureaucratic (expensive) when simply eliminating the state dividend would do. The very real risk is a shortage during peaks and the running down of infrastructure. Also, I assume they’ll be cutting state expenditure given they won’t have the dividends?

    Like or Dislike: Thumb up 10 Thumb down 1 (+9)

  56. Gregor

    Sorry Jackal. I can’t explain it any better. Any accounting or economics textbook will tell you what I have described.

    Yes! I’m aware it’s an economic theory in textbooks. However I’ve shown why it doesn’t apply in this case to any of the power cos in question.

    A reduction in revenue equals a reduction in revenue.

    I suspect you mean a reduction in revenue equals a reduction in net profit? There will be no overal “reduction” in revenue. Revenues will continue to grow.

    The options available to cover this shortfall are to increase price, increase volume, reduce costs or a combination of all three.

    You seem to be ignoring the elephant in the room Gregor… Last year, revenues increased more than the proposed 7% reduction. Therefore there will be no shortfall… Revenues will simply not increase as much.

    Historically, revenues have increased because along with power prices; residential, commercial and agricultural volumes have increased. The proposal targets power prices, not volumes, which will continue to increase. Increasing volume will mean revenues continue to increase, even with cheaper power prices.

    In other words, power companies should not be adversely affected by this policy and the right wings fear mongering that its “economic vandalism” isn’t helpful or correct.

    photonz1

    Yeah right. Sooooo believable.

    What makes you thunk all lefties come from poor families photonz1?

    Arana

    I have never denied climate changes. Climate changes. Fact.

    You’re a anthropomorphic climate change denier then Arana… Happy now?

    Like or Dislike: Thumb up 1 Thumb down 7 (-6)

  57. “I have never denied climate changes. Climate changes. Fact.”

    Most
    Feeble
    Claim.

    Ever.

    Like or Dislike: Thumb up 7 Thumb down 8 (-1)

  58. You’re a anthropomorphic climate change denier then Arana… Happy now?

    No. I also maintain it’s hard to see how man wouldn’t have an effect on climate.

    Like or Dislike: Thumb up 7 Thumb down 2 (+5)

  59. BTW:

    Roy Spencer produces some inconvenient data:

    drroyspencer.com/2013/04/global-warming-slowdown-the-view-from-space/

    “So, if you are going to claim that the observations support some of the models, and least be honest and admit they support the models that are NOT consistent with the IPCC best estimates of warming.”

    Roy Warren Spencer is a climatologist, Principal Research Scientist at the University of Alabama in Huntsville, and the U.S. Science Team leader for the Advanced Microwave Scanning Radiometer on NASA’s Aqua satellite.

    Like or Dislike: Thumb up 6 Thumb down 2 (+4)

  60. BJ,

    It is always good for you free market fanatics to have private owners of anything make money by dint of owning stuff, at the expense of everyone else.

    Whilst a true statement the reverse where the state owns the assets and is not averse to taking the profit (and increasing prices to suit state policy initiatives expenditure).

    Labour did very well out of the 70% price increase over the term of their last seat warming on the treasury benches.

    Lets not pretend that state ownership is any less likely to increase prices to suit their needs, anymore then private owners may or may not.

    Having grown up with the 1960 to 1980 state control of everything, I’m weary to see a change back to it. Not saying that the electricity model does not need changing, just that the cure, as espoused, is a slippery slope.

    For as you implied, next will be banking, then transport, then produce, etc., etc., etc.

    Not too sure New Zealanders will back the Greens if they go too far.

    Real crunch will come when people look at their KiwiSaver funds and see low returns. Not what they signed up for.

    At least we have a three year cycle to revert elect other governments, to control the state.

    Could be short boom 2014-2017 for Labour/Greens (Greens/Labour?) to a long bust if the populace don’t see positive action stemming from the electricity reforms.

    By that I don’t mean cheaper prices but also steady supply for a hopefully growing market (after all you do want your KiwiSaver fund to grow).

    Something not covered as there is no capex for development noted in the proposal.

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  61. Unusually, I can’t be arsed to read all the commnents above, because they are all debating money, and money is actually not the most important thing in this issue.

    The core question is what sort of electricity supply does New Zealand want. We can have any sort of arrrangement we want, and we have had a number of arrangements previously.

    Important considerations include:

    a) The entire New Zealand electrical supply infrastructure is (and always has been) paid for by New Zealanders, for the last while through their electricity bills, but before that through their taxes, as the taxpayer paid for much of the infrastructuire that is still working, and will continue to work for years to come.

    b) Electricity is special, as it cannot be usefully stockpiled as a ready-to-consume product. The original constructors of the New Zealand electicity system understood this better than any other utility in the world, and built the world’s most efficient electicity system to reflect this. (note this is electrical efficiency, not manpower or administrative efficiency). Unfortunately, sucessive governments of all colours were too stupid to understand that our system was different to everyone elses and thus required a different investment strategy than everyone elses, and thats why the lights ended up going off.

    c) Electricity supply is a natural monopoly. Ther is no different types of electicity; the only differentiating factor is how it was generated.

    d) Restating point b, historically, had the investment in electricity been made when it needed to be made, and we didn’t simply say “we’re to stupid to uderstand this” and then adopt models used in other jurisdictions, today, electricity would cost a fraction of what it does, and the lights would have stayed on. I was working on the numbers but got dragged off to do some real work, so the analysis is incomplete, and will be a task for a later time.

    e) Running electricity assets to the beat of the drum of some pseudo-marketplace bullshit rather than for sound electrical engineering reasons is not good for the assets. As a concrete example, the HVDC inter-island link was designed and specified for two direction changes a year, as the engineeering reality is that most years one would want to send power south in summer and north in winter. The market has sometimes required multiple direction changes per week, and such frequent direction changes reduced the life of the original installation.

    Now it is true that if the country decides that it wants to change how we do electricity (for the pathetically small sum of $300 per year) then we could have a better (and different to most of the rest of the world) electricty supply industry. There will be ructions in the financial marketplace, and winners, and losers. But that is collateral damage, not the key driver.

    As noted, most folks in the conversation here cant see further than the collateral damage, rather than the top line. Electricty is a different product to most everything else, so using simplistic arguments that work perfectly well for Mars bars and cars are woefully lacking when it comes to electricity. The fact that these discussions can and do take place in ignorance of the product is just an indication of how broken the electricty supply industry has become: it has been made to appear to work like Mars bars and cars. And that is the root of the problem.

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  62. alloytoo notes:

    I predict rolling blackouts during peak times punctuated by the gentle roar of Diesel … generators filling in the gap.

    In Christchurch city Orion Energy installed diesel generators for dry year generation. [link] Of course, we’ve had a bit of wobbly ground activity since then, so I’ve no idea if they were damaged, many substations had a hard time of ther quake.

    In adition, companies who have generation for power continuity purposes (for example, to keep data centres running) can elect to have their gensets remotely started by their retailer, so that they contribute to the supply when the electricity spot price (which is what the retailer buys power for) gets expensive, and the diesel genset owner gets paid close to the the spot price for such generation, which is a very profitable activity.

    So the gentle purr of diesel generators is a regular occurance, not merely a prediction.

    Of course, you could argue that running diesels to help the retailer improve their profit (for that is exactly what this is), bunging soot and CO2 up the stack rather than making use of available but more expensive renewable energy is another artifact of the psuedo market bullshit I referred to above.

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  63. dbuckley,

    because they are all debating money, and money is actually not the most important thing in this issue.

    Why then is it the opening gambit in the Labour?Greens policy statement?

    New Zealanders are paying too much money for electricity……..

    We are going to fix that cost by………………

    Nothing about securing supply except to force generators to supply whether or not it is profitable to do so by the Generators.

    They will sell the electricity at a fixed cost to the distributors who may only pass on a small “handling” fee.

    Everything is about money, how much the state will pay and how much the retailers will be able to mark up. Money Money Money all the way.

    I guess the Labour/Greens do not want to upset people too much prior to 2014 by doing the fail safe method to save the consumer money (that word again) by nationalising the generation and retailing just yet.

    Strip out the generating and retailing profit centres (after all NZPower is but a middleman ticket clipper) to save real Money.

    For that will impact KiwiSaver account severely depending on where your provider has invested your Money.

    And that saved Money being redistributed to the populace (all $30 per month) will trickle upwards to businesses so they will have greater cashflow Money, enabling the businesses to employ more people (5000 is the stated figure).

    Those 5000 people will be paying Money in taxes so that the economy gets a Money boost for the state to further redistribute.

    At least I think that is the theory.

    But don’t be mistaken, it is all about money and less about restructuring the industry to ensure efficient and cheap supply.

    The Money is for redistribution not reinvestment.

    Like or Dislike: Thumb up 8 Thumb down 0 (+8)

  64. ” A single buyer would likely result in higher capital and operating costs.”

    Concluded David Parker, Labour Party, when as Minister of Energy he ruled out a single market system like the one now proposed, because it did “not appear to offer marked improvements overall”, had significant costs, and risks.

    The Greens/Labour sabotage plan has been put together with so little thought that (apart from wiping out 2/3 of a billion dollars of Kiwis investments in the last two days) they didn’t even realise they’d previously ruled it out as a bad idea.

    One of the other reasons they said it shouldn’t go ahead? Because it would wreck investor confidence.

    As Contact Energy says, it’s unlikely the $2.5 billion they’ve recently invested in renewable energy generation, would have happened if the Labour/Greens scheme had been in place.

    Like or Dislike: Thumb up 10 Thumb down 3 (+7)

  65. dbuckley,

    I agree with your general sentiment, which is that electricity (particularly in NZ, given our size and geographic challenges) is a very difficult market to operate.

    What concerns me about this proposal is that, in the longer term, forcing down the price of retail power through a monopsony is not aimed at addressing these challenges. It strikes me as something that has come out of a bunch of Labour/Greens policy discussions, and is very superficial – the basic sentiment is “power is too expensive, so lets lower its cost”. While they have a (likely poorly reasoned) 4 pager from BERL, you can bet your bottom dollar this policy has not been rigorously costed or thought out.

    To actually reduce power pricing in the longer term, we need to have new generation assets being brought on stream. Given the financial impact of these policies, where will that come from? I’m particularly bemused that the Greens now seem to believe both that a) power usage needs to come down, the price of coal powered generation should increase and large scale investment in renewables is needed, and b) power should be cheap.

    As a final point, I’m disappointed at the cavalier manner in which this has taken place. If Labour and the Greens have a genuine conviction that the electricity market is broken, then buy them at market price and knock yourself out with your reforms. I have no issue with that. But dropping policy bombshells without any thought to the consequences is very poor form, and has a whiff of banana republic about it.

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  66. It would not have been invested by Contact Energy. Photonz, not by that entity on its own. The point DBuckley makes and Gerrit made but has somewhat forgotten now, is that the electricity you use doesn’t have a “produced-by” label of any sort and DOES have a rather stringent “use-by” date attached (RIGHT NOW). This is not an ordinary market, it is a natural monopoly artificially manipulated to extract “profit”.

    We can approach it one of two ways. I like this one better because it leads in my opinion, to a better long term prospect of actually fixing the economic system’s heart (the money issue) and actually turning the society back into a civil society instead of the darwinian rat-race favored by the folks who are the top rats.

    Like or Dislike: Thumb up 2 Thumb down 7 (-5)

  67. I’m glad David Parker has seen the light and now agrees with the Greens. We’ll keep him to it when we get back into government with him at the next election.

    I’m an investor in energy companies (including Contact) and I’m confident this is the right move for NZ as a whole, since it will challenge the oligopoly in electricity supply and benefit consumers by reducinging the excessive profits and other inefficiencies of the big suppliers.

    As for Contact not making new investments, that’s kind of the point. The system will encourage investment from new, more efficient suppliers.

    Like or Dislike: Thumb up 1 Thumb down 10 (-9)

  68. BJ,

    Forgotten what?

    I merely making the observation that the quasi state control envisaged by Labour/Greens is but partial renationalisation that will lead to full renationalisation as the private players drop out.

    The savings in monetary terms will not come until full nationalisation is achieved.

    Simply adding an extra layer of state control and operating expenses is not going to do it (sorry yes it will save each household $30 per month).

    You must admit that the primary reason this is done is to persuade the voter that they will pay less for electricity in 2014 AS LONG AS THEY VOTE LABOUR/GREENS.

    You can spin electricity distribution savings through efficiencies in the network all you like but that is not the primary reason for the nationalisation.

    Primarily designed to get votes.

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  69. BJ says “It would not have been invested by Contact Energy. Photonz, not by that entity on its own.”

    Wrong – from ODT…

    “Contact chief executive Dennis Barnes told BusinessDesk it was hard to see how the company, which operates the Clyde Dam hydro scheme, would have justified investing $2.5 billion on new power plants if the Labour-Green electricity policy had been in place.”

    Like or Dislike: Thumb up 7 Thumb down 3 (+4)

  70. Alex says “I’m an investor in energy companies (including Contact) and I’m confident this is the right move ”

    yeah right – it’s such a good more, the value of your investment has plummeted.

    Alex says “…benefit consumers by reducinging the excessive profits …”

    The average after tax profit from the big five last year was just 4.8%.
    On what planet is that thought of as excessive?

    Alex says “As for Contact not making new investments, that’s kind of the point. The system will encourage investment from new, more efficient suppliers.”

    Yeah right – so higher risk for less money will encourage MORE investment in generation. Again, on what planet?

    Like or Dislike: Thumb up 9 Thumb down 2 (+7)

  71. Jackal says “Revenues will simply not increase as much.

    In other words, power companies should not be adversely affected by this policy and the right wings fear mongering that its “economic vandalism” isn’t helpful or correct.”

    Your understanding of business is abysmal.

    It’s really very, very simple. Revenue – costs = profit.

    Effectively $100 of electricity costs $95 to make and distribute, leaving 5% profit which was last years average.

    If you sell the same electricity for 7% less – $93 – it STILL costs $95 to make and distribute. Hence a loss.

    Reducing the price has ZERO effect on cost of production.

    And you think wiping over $600 million of NZ investors savings is fear mongering.

    It’s not some empty threat – It has ALREADY HAPPENED !!!

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  72. photon

    If you sell the same electricity for 7% less – $93 – it STILL costs $95 to make and distribute. Hence a loss.

    But it’s not the same amount of electricity being sold photonz1. Revenue is based on the volume and price as well, both of which increased more last year than the proposed 7% savings for consumers… For instance, revenue increased by 31% for Mighty River Power last year. Revenue has increased because prices have gone up, and more power is being sold.

    You’re trying to convince us that there can be no efficiency gains as well, while National is claiming there has been increased efficiency through competition. You’re getting caught up in your own spin.

    And you think wiping over $600 million of NZ investors savings is fear mongering.

    It’s not some empty threat – It has ALREADY HAPPENED !!!

    Contact Energy shares have been falling since 15 November 2012 when they were $5.820. The Labour and Greens announcement was on Wed 17. The shares had been falling for TWO DAYS before their announcement photonz1.

    Like or Dislike: Thumb up 2 Thumb down 8 (-6)

  73. Jackal says “Contact Energy shares have been falling since 15 November 2012 when they were $5.820.

    Jackal thinks a 6 c drop over FIVE MONTHS then a 60 c drop in two days (wiping off half a billion dollar of Kiwis investments) is some natural fall.

    Proof that the Greens/Labour plan is economic sabotage, rather than policy, is that no one knows where the $700 million is coming from.

    So far we’ve heard from those proposing the policy that savings will come from the government losing dividends and tax to the amount of –
    – $260m, OR
    – $90 m, OR
    – $365m, OR
    – $60m OR
    – zero.

    The Greens and Labour have no idea – not even the slightest clue – of
    – where the savings will come from
    – how much they will be
    – what the cost will be to the taxpayer.

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  74. Another contradiction within the right wings propaganda is that they claim the government doesn’t control electricity prices, yet they harp on about electricity prices increasing by 70% in nine years under the last Labour government.

    If you look at this graph showing change in household electricity prices adjusted for inflation across the OECD, you’ll see the growth in the price of electricity hasn’t really slowed at all under National.

    H/T danylmc

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  75. Jackal would make a good financial spokesperson for the Greens. His level of understanding appears to be on the same level as Russel’s, certainly.

    The only time electricity price rises slowed significantly was under Bradford’s reforms, pre-2002.

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  76. Reducing the overinflated valuations of the power companies is a fine thing, since those valuations are based on them being able to use their market power to overcharge electricity consumers.

    The loss of income to the company owners is not a bad thing because it is re-distrbuted to electricity consumers. This is a progressive policy; shareholders on average have higher incomes than the average electricity consumer. If you loose more than $30 per month through reduced dividends then you almost certainly retain enough dividend income to still be better off than the average electricity consumer.

    In the absolute worst case, if you can’t work and all your income is from energy company dividends, then you have had very bad investment advice, but there is still the unemployment benefit.

    People opposed to this policy are defending the right of the wealthy to be able to extract as much money as possible from average consumers by racheting up electricity prices without bound. Those industries that operate natural monopolies/ oligopolies (there are a limited number of decent hydro, geothermal & wind sites) should be subject to practical regulation to keep those excess profits in check.

    The wealthy are complaining loudly because this policy will be effective.

    Despite loosing some investment value, I won’t cry too many tears over this one. It’s a good thing.

    Like or Dislike: Thumb up 3 Thumb down 6 (-3)

  77. photon

    Jackal thinks a 6 c drop over FIVE MONTHS then a 60 c drop in two days (wiping off half a billion dollar of Kiwis investments) is some natural fall.

    Learn to read a fucking graph before spouting a whole lot of rubbish photonz1.

    The latest drop started on Monday, which is hardly five months. Prior to that ordinary shares showed relatively good growth. The fall started TWO DAYS before the announcement was made, making you a liar photon.

    If you make mountains out of molehills for every little fluctuation photonz1, I suggest the stock market isn’t the place for you. Look at the 50 day moving average and be prepared to play the long game.

    Yesterday Contact shares once again started to show relatively good growth (increasing $5.150 to $5.310). What has changed to now make people start buying shares again photonz1, because Labour and the Greens policy hasn’t changed.

    Apart from our resident troll, the right wing seems to have slowed down with their doomsaying and fear mongering. Perhaps that’s why the shares are bouncing back?

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  78. Photonz You said Contact wouldn’t have invested. I agreed and said someone else would. You then told me I was wrong and that Contact wouldn’t have invested.

    Maybe you should count to 10 or read the post you respond to a second time to be sure you are responding to the point made.

    ?

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  79. Gerrit – You DO remember your point that we couldn’t control where the electricity we use comes from – don’t you? That’s the bit I am pointing out.

    Like or Dislike: Thumb up 1 Thumb down 2 (-1)

  80. Jackal – you try and argue the half a BILLION dollars wiped off Kiwis investments in just two companies in just two days, is some natural fall.

    You may as well just go and get “imbicile” tattooed on your forehead. Using capitals and bold.

    All you do is repeatedly display you don’t have the slightest idea of how the share market works – You’ve shown you don’t know the difference between profit, EBITDAF, and revenue, and you misuse terms like “growth” (used to describe how a business increases in size over time) for a share price bounce that happened in an afternoon.

    You really should restrict yourself to things you know about, or at least research enough so you don’t continually make a total fool of yourself.

    Jackal says “I suggest the stock market isn’t the place for you.”

    Says jackal who has proven he has no idea of how the stock market work, but is trying (and failing miserably) to sound like he does.

    In the last few months my earnings from investments have overtaken what I earn from my business – and you try to give me investment advice.

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  81. Gerrit

    I am not sure about the design, though I don’t doubt that the idea of getting a few votes extra did enter into it.

    The thing is that this sort of move is a requirement for any effort to rationalize the NZ dollar and gain the ability to kick the banker’s out of power… and I am NOT in this case talking about Key, he’d merely be collateral damage.

    I don’t know… you may be right it may be vote grabbing, but it isn’t wrong on that account. Would be better to do a straight-up nationalization… but smaller steps are easier.

    Like or Dislike: Thumb up 1 Thumb down 4 (-3)

  82. BJ says “Photonz You said Contact wouldn’t have invested. I agreed and said someone else would.”

    Sorry – I misunderstood what you meant.

    Not that it matters. Why would anyone invest hundreds of millions of dollars in generation that’s going to be worth LESS than what it cost them to build?????

    As Contact says, generation simply won’t get built under the Greens/Labour plan.

    Like or Dislike: Thumb up 5 Thumb down 2 (+3)

  83. photon

    Jackal – you try and argue the half a BILLION dollars wiped off Kiwis investments in just two companies in just two days, is some natural fall.

    You may as well just go and get “imbicile” tattooed on your forehead. Using capitals and bold.

    Angry that I caught you out in another lie eh photon.

    First you claim the policy which was announced on Wednesday is the only cause for people to sell shares, ignoring the fact that a cycle downward had already started TWO DAYS before the announcement. You also ignore the fact that shares are now worth what they were a couple of months ago, and are now again increasing in value.

    Clearly you’ve overreacted like a drama queen photonz1 to what is a socially beneficial policy that will have little impact on power companies ability to remain profitable.

    Your reaction along with some National MPs makes me think the right wing has totally lost the plot.

    Like or Dislike: Thumb up 4 Thumb down 7 (-3)

  84. jackal says “Perhaps that’s why the shares are bouncing back?”

    Or perhaps it’s because one of the countries largest stock brokers yesterday put out a “buy” notice on Contact and Trustpower because they believe the Greens/Labour policy is too loopy to ever be a serious policy – it’s just a sabotage attempt at asset sales.

    (backed up by the fact that nobody in the Greens or Labour knows even basic information about the policy like where the $700m savings are going to come from)

    Like or Dislike: Thumb up 7 Thumb down 3 (+4)

  85. Jackal says “Angry that I caught you out in another lie eh photon”

    You idiocy know no bounds.

    “More than half a billion dollars has been wiped off the value of Contact Energy and TrustPower since Wednesday night, the day before the Labour and Green parties announced their plans to lower electricity prices.
    By yesterday afternoon, $641 million had been lost from the combined values of the two electricity generators as investors tried to understand what the two Opposition parties were proposing.

    At one stage, there were no buyers in the market for TrustPower – only sellers.”

    http://www.odt.co.nz/news/business/253752/labour-green-power-plans-hit-shares

    Like or Dislike: Thumb up 8 Thumb down 3 (+5)

  86. Using photonz1’s heightened level of consternation as a measure of success, this proposal by Labour and the Greens is a hands-down, rip-snortin’ winner. Every time you call and idea, a Green MP or a commenter here, “stupid”, I chalk-up a certain victory to your target. Rant on, photo. You thrill me!

    Like or Dislike: Thumb up 6 Thumb down 10 (-4)

  87. Newsflash to photonz1… The stock market fluctuates. There was a similar fall in Contact Energy shares in November 2012… How was that Labours fault photonz1?

    With Labour and the Greens 8.5% ahead of National in the latest polling, it’s very likely this popular policy will be implemented after the 2014 election. That makes me think:

    it’s because one of the countries largest stock brokers yesterday put out a “buy” notice on Contact and Trustpower because they believe the Greens/Labour policy is too loopy to ever be a serious policy…

    Is entirely incorrect. The buy notice would have been put out because shares were at a good buy price and power companies will continue to increase their revenue streams (positively affecting profit margins) even while saving consumers $700 million per year. The power cos earned nearly $10 billion last year in revenue… 7% of that isn’t the end of the world photonz1.

    If this policy is going to “sabotage” the asset sales, they were on more shaky ground than I first thought. It’s likely the referendum and the next election will put a halt to any further idiotic asset sales… This policy will simply put more money into New Zealanders back pockets, where it belongs.

    Like or Dislike: Thumb up 4 Thumb down 8 (-4)

  88. Jackal says: “But it’s not the same amount of electricity being sold photonz1. Revenue is based on the volume and price as well, both of which increased more last year than the proposed 7% savings for consumers… For instance, revenue increased by 31% for Mighty River Power last year. Revenue has increased because prices have gone up, and more power is being sold.”

    Are you saying that if revenue goes up, there are no increases in costs? You are financially illiterate. It is unbelievable that you cannot understand this simple point.

    Yes, it is possible that even with lower prices, increased demand will increase total revenue. But – and I cannot emphasize this to you enough, as you seem incapable of understanding – no one invests in a business to generate revenue. We are interested on the impact of that reduction in price on profit.

    While Mighty River saw a 31% rise in revenue, their costs increased by a greater amount – by 47%. In 2012, their net profit actually fell from 2011. If you had applied a 7% reduction to their revenue from sales in 2012, they would have lost money.

    In such a market, who would invest in MRP? Some of these companies have large sunk investments, so they may be able to find a way to turn a profit by reducing capex (i.e. not investing in assets or maintaining their current ones). But that means they won’t bring any new generation on stream. And no one would voluntarily enter the market.

    Like or Dislike: Thumb up 5 Thumb down 1 (+4)

  89. Photonz – If the government pulls the “profits” out of the mix and does what is fundamentally a re-nationalization of the electrical supply here, then the investment in new generation almost certainly becomes the province of government. So there IS an entity that has an interest in doing it. Just not one you like.

    There isn’t “profit” involved in this?

    Perhaps in your perception of the way things work there is not, but the country as a whole gets more energy to work with, at low fixed prices… and that lets everyone ELSE make stuff because additional power is work done, and so it adds to the real money supply. Which means that building more power generation and particularly renewable power generation (hydro dams and run-of-river hydro are specifically INCLUDED in that) is something that increases the collective wealth of the nation.

    Like or Dislike: Thumb up 4 Thumb down 4 (0)

  90. It appears that despite the consumption of electricity actually declining slightly since 2007, the power companies average revenue streams increased by 18.6% in 2012.

    That means even with a 7% reduction in their revenues to save consumers $700 million (based on increased revenue of 18.6% last year), the power companies should still be able to increase their profit margins.

    They have already shown that they can increase their revenue despite falling consumption rates… Falling consumption rates mainly due to a declining industrial sector. Power companies are effectively selling less power overal but more power at higher prices to residential customers.

    So it appears that you can actually have decreased output and therefore reduce operating expenses while increasing revenue. This would also mean that there’s no need for large capital projects to increase production, unless you want to replace existing generation that is.

    Like or Dislike: Thumb up 3 Thumb down 6 (-3)

  91. AICB

    Are you saying that if revenue goes up, there are no increases in costs?

    That’s what appears to have occurred AICB (see my comment above)… Generated output of electricity has reduced while revenue has on average increased by 18.6% in 2012.

    There are many reasons as to why increased revenue while output declined hasn’t caused net profits to increase… One is that National has increased debt levels for state owned power companies by more than 84% since 2008.

    Servicing additional debt would undermine net profits even with increased revenue.

    However there are other reasons for a low profit margin such as an abundance of top management paying themselves handsomely for doing sweet fuck all.

    Do we actually need any more examples of Nationals total business incompetence like the failure of Solid Energy?

    Like or Dislike: Thumb up 4 Thumb down 5 (-1)

  92. Hilarious – Jackal, who showed he doesn’t know what a profit is, is lecturing everyone on the stock market.

    And Greenfly judges a policy not on whether Kiwi investors have just lost over half a billion from their savings, but on what some anonymous person on the internet thinks – is it possible to be any MORE small minded???

    BJ says “but the country as a whole gets more energy to work with, at low fixed prices…”

    Only because the taxpayer is subsidising it.

    The electricity isn’t any cheaper.
    The distribution isn’t any cheaper.
    The costs aren’t any less.

    It’s just that the government has to cut billions of dollars of services to –
    – make up for lost tax
    – make up for lost dividends
    – pay extra interest on the new debt they have from building new generation
    – pay extra interest when they borrow to buy existing private generation
    – pay extra interest on the debt they have because they couldn’t use asset sales money for schools, and paying off existing debt.
    – pay extra interest on the debt they take on to build new transmission, because power prices aren’t high enough to pay for it.

    And much much more transmission and generation will be needed, because with the taxpayer subsidising power prices, the incentives to be efficient are gone.

    Like or Dislike: Thumb up 9 Thumb down 3 (+6)

  93. AICB says “Are you saying that if revenue goes up, there are no increases in costs? You are financially illiterate. It is unbelievable that you cannot understand this simple point.”

    Jackal has shown repeatedly he has no idea of the basic relationship between revenue and cost and profit.

    That’s why he thinks when they charge more money, but produce less power, they make a bigger profit.

    But he totally failed to factor in costs, like the massive increase generators have had to pay to government run transpower to upgrade transmission.

    In fact 70% of recent power rises are NOT from the generators, but from the cost of transpower upgrades are being passed on.

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  94. Why the Greens/Labour elctricity policy is economic sabotage – not a policy

    “JBWere has sent a strong message that it and other investors will flee the New Zealand stock market if the state intervention signalled by Labour and the Greens this week comes to pass.

    “We doubt we would be alone in making this judgement.”

    Read more: JBWere predicts capital flight – Story – Business – 3 News http://www.3news.co.nz/JBWere-predicts-capital-flight/tabid/421/articleID/294977/Default.aspx#ixzz2R0TFsv3C

    With such a loony policy, the Greens/Labour have effectively put up a sign saying, “if we look like we might get elected, get your money out of NZ businesses, real quick”.

    There’s already opinion coming out from other main investment advisors to this effect – investing in NZ has just become significantly riskier.

    Others are saying buy while the stocks are down, because the policy is so nutty that Labour would never continue with it.

    Like or Dislike: Thumb up 7 Thumb down 2 (+5)

  95. Jackal says:

    “That means even with a 7% reduction in their revenues to save consumers $700 million (based on increased revenue of 18.6% last year), the power companies should still be able to increase their profit margins.”

    “So it appears that you can actually have decreased output and therefore reduce operating expenses while increasing revenue. ”

    I’m sorry, but this is just getting ridiculous. It categorically, 100%, is not what has occurred. I just showed you the numbers for MRP – you can look through the annual reports of any of the gentailers and you will see the same story. Operating expenses have been increasing relatively inline with revenue, reflecting the many variables at work in the electricity industry – capex, the variable marginal cost of generation and changes in transmission costs.

    I’m not sure why you refuse to accept this point. You are saying that white is black – it is embarrassing. There are many other areas of this policy that could make for useful discussion, but this isn’t really up for debate, so just accept it and move on.

    Like or Dislike: Thumb up 3 Thumb down 1 (+2)

  96. @ dbuckley

    I was talking about noisy portable Generators in suburbia at six in the evening simply because power generators can’t be bothered to meet peak demand at statutory prices.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  97. photonz1

    The problem is there’s a monopoly that’s not delivering affordable electricity. Presently the cost of electricity is based on the cost of new generation, not the overall production cost including dams that cost less than a cent a kilowatt per hour to run. Labour and the Greens policy will hopefully resolve these issues.

    But he totally failed to factor in costs, like the massive increase generators have had to pay to government run transpower to upgrade transmission.

    Costs that are regulated and passed onto customers photonz1… Even you should know that. If you think returns in the vicinity of 60% isn’t over the top, then your clearly deluded!

    Like or Dislike: Thumb up 1 Thumb down 4 (-3)

  98. The problem is there’s a monopoly that’s not delivering affordable electricity.

    Jackal – generation is not a monopoly. What it is is a poorly performing pseudo-market. Quite different.

    Transmission is (rightly) a natural monopoly, but generation isn’t.

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  99. Jackal give us yet another example of his financial illiteracy …” If you think returns in the vicinity of 60% isn’t over the top, then your clearly deluded!”

    4.8% after tax profit was the average last year ($488m, from sales of $9961m for the big five generators).

    Jackal calls 4.8% “in the vicinity of 60%”.

    I think everyone can see who is deluded.

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  100. “It’s been obvious from the outset that the market reforms were designed to benefit shareholders rather than consumers. These fake markets created by National in the late 1990s and operated by Labour without significant change for the next decade have hammered hapless consumers. It’s been a charade with companies acting like a cartel rather than competitors.”

    http://thedailyblog.co.nz/2013/04/21/bolder-than-expected-but-too-timid/

    Like or Dislike: Thumb up 2 Thumb down 3 (-1)

  101. Gregor

    Jackal – generation is not a monopoly. What it is is a poorly performing pseudo-market. Quite different.

    Transmission is (rightly) a natural monopoly, but generation isn’t.

    Well, you can call it what you like Gregor, however where there isn’t sufficient competition to drive down prices for consumers, I tend to think that should be called a monopoly. New Zealand creates natural monopolies that without government intervention causes economic and social dysfunction.

    photonz1

    Jackal give us yet another example of his financial illiteracy …” If you think returns in the vicinity of 60% isn’t over the top, then your clearly deluded!”

    4.8% after tax profit was the average last year ($488m, from sales of $9961m for the big five generators).

    You’re a broken record… I said RETURNS photonz1, not profits. Idiot!

    55% of power in new Zealand can be generated for around a cent a kilowatt per hour… Therefore it should be cheaper for consumers than it currently is. Voters know that and will appreciate political parties having policy in place to ensure the public gets a fair deal. Under National they aren’t getting a fair deal, and no amount of rhetoric or propaganda from you will change that fact photonz1.

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  102. The Greens / Labour power policy judged on –

    – if it encourages investment in the productive sector – FAIL
    – if it encourages Kiwis to invest in NZ rather than overseas – FAIL
    – if it moves investment towards or away from housing – FAIL
    – if it helps protects the value of govt generation assets – FAIL
    – if it encourages more new generation – FAIL
    – if it encourages investment in security of power supply – FAIL
    – if it protect govt income from generation assets – FAIL
    – if it protects retirement savings in Kiwisaver, NZ Super etc – FAIL
    – if it means govt services cut because of lower tax and dividends – FAIL
    – if it means ratepayers in Auckland, Tauranga etc lose jundreds in annual subsidies from local body ownership of power companies – FAIL
    – if it encourages people to use energy more efficiently – FAIL

    Like or Dislike: Thumb up 6 Thumb down 4 (+2)

  103. How ignorant can one person be…jackal says “55% of power in new Zealand can be generated for around a cent a kilowatt per hour… Therefore it should be cheaper for consumers than it currently is. ”

    Completely ignoring the fact that BEFORE you can do this you have to do something. Now what is it?…….Oh, that’s right. You have to build a dam, or buy one.

    And as you can see from Gareth graphs, that’s more expensive that any other type of generation.

    That’s as dumb as saying we should all generate solar power because it’s completely free, while totally ignoring the cost of solar panels.

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  104. photonz1

    Oh, that’s right. You have to build a dam, or buy one.

    The dams were built and paid for a long time ago photonz1, so the public should pay the actual cost of production in todays terms. Currently we’re being charged as if they’ve just been built and that capital expenditure needs to be paid off. There is no capital expenditure for at least 55% of our power generation, and that’s what makes the high price of power in New Zealand such a con.

    Like or Dislike: Thumb up 3 Thumb down 3 (0)

  105. Jackal says “You’re a broken record… I said RETURNS photonz1, not profits. Idiot!”

    What are you talking about? Please tell me what you mean by returns? To the layman, that is an obvious shorthand for profit.

    Obviously you mean something else, so what is it? Where are you getting the 60% figure from?

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  106. Jackal says “The dams were built and paid for a long time ago photonz1, so the public should pay the actual cost of production in todays terms”

    If you had even a slither of business knowledge, you’d know the cost of the dams is depreciated over their lifetime.

    You also show you don’t have even the slightest idea of WHY power prices have gone up to the extent they have.

    You brainlessly put it down to big profits, when the big five made 4.8% after tax profit last year.

    Just like you completely ignore the fact that you need to have pay for a dam to get hydro power, you also ignore the fact that the likes of Contact have spent $2,500 million recently investing in renewable generation.

    Like you ignore the fact that companies can pay the best part of half a BILLION dollars every year to Transpower, so they can invest in upgrades.

    And like you ignore the fact that the MAJORITY of recent increases, is because of govt owned Transpower – NOT the generation companies.

    The line that all the increases are just because of price gouging is simplistic nonsense aimed to con the gullible.

    And YOU are proof that it’s worked.

    Like or Dislike: Thumb up 7 Thumb down 3 (+4)

  107. photonz1

    The line that all the increases are just because of price gouging is simplistic nonsense aimed to con the gullible.

    So far I’ve argued that an abundance of top management paying themselves excessively and National increasing debt levels by nearly 90% has also contributed to lower net profits photonz1.

    It would seem that you’re so steamed up about this worthwhile policy that you can’t even see past your nose to read the words on your computer screen.

    Like or Dislike: Thumb up 3 Thumb down 5 (-2)

  108. Jackal, in response;

    Well, you can call it what you like Gregor, however where there isn’t sufficient competition to drive down prices for consumers, I tend to think that should be called a monopoly.

    A monopoly is a monopoly just like the moon is the moon. It’s better to use accurate terms.

    You have a couple of concepts muddled here. There is sufficient competition at the retail end of the market to allow effective pricing. However, what we have is a not particularly functional wholesale clearing market, which means retail prices are high. This is for a number of reasons, but it’s not for want of competition.

    New Zealand creates natural monopolies that without government intervention causes economic and social dysfunction.

    Don’t get natural monopoly and monopoly mixed up. In fact, under the old model of fully state owned generation, transmission and distribution you had a natural monopoly – one that was created by legislation. IMO this was no bad thing.

    Like or Dislike: Thumb up 4 Thumb down 0 (+4)

  109. Gregor W

    A monopoly is a monopoly just like the moon is the moon. It’s better to use accurate terms.

    Somehow I don’t think “poorly performing pseudo-market” is going to catch on Gregor W.

    Like or Dislike: Thumb up 3 Thumb down 1 (+2)

  110. Who gives a fuck about power company profits. They are an essential service required to keep households and business running.

    Who really gives a fuck that those few New Zealanders in a position to buy heaps of shares, and the many offshore sharks, have their expectations of fleecing New Zealanders forever, with overpriced power, have their wings clipped.

    The extra jobs, lower costs and extra export competitiveness that lower power prices will bring, will more than make up for any loss of dividends. (Comical to watch the same people who reckon tax cuts to the rich will help the NZ economy, trying to spin that cuts in power prices, a sneaky tax paid either to Government or private owner profits, will do the opposite)

    This is brilliant policy.
    Derailing the economic vandalism that is privatisation.
    Finally getting away from the Neo-liberal dogma that everything should be marketised, financialised and competisised.
    Taking away the super profits, tax on the rest of us, that the asset sales assumed.
    Destroying the assumption that big corporate power company buyers had that they could run them into the ground then force the Government to buy them back at an inflated figure. (A problem with saying we will buy them back).

    Now we just need Labour and Green politicans to keep pushing the obvious benefits without putting their foot in their mouth like Parker, and I am afraid Gareth, did this morning.

    And the best thing is watching Photo spinning like a top, trying to protect his dividends. And give himself a bigger power bill!

    Like or Dislike: Thumb up 2 Thumb down 9 (-7)

  111. With Winston Peters suggesting that he would use the Cullen Super Fund and dip into private KiwiSaver accounts to forceably buyback any sold state assets must be a strategic worry for Labour/Greens.

    He said buying back Mighty Rover Power would be bottom line for NZ First support for any Government.

    http://www.nbr.co.nz/article/use-kiwisaver-buy-back-contact-mighty-river-peters-ck-138977

    Some distance must be placed between Labour/Greens and New Zealand First unless a voter backlash against the NZPower proposal is felt.

    Very dangerous territory for Winstom Peters to entertain (and the very reason I did not start a KiwiSaver account) the notion politicians can play with voters savings.

    The KiwiSavers accounts are private accounts not state accounts.

    Best Labour/Greens start getting PR going that in 2014 New Zealand first wont be a coalition partner under the terms spelt out by Winston Peters.

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  112. Gerrit

    The KiwiSavers accounts are private accounts not state accounts.

    I can go through all the various acts to show you that what Winston Peters proposes is achievable through current legislation… Technically, and unless expressly provided in the KiwiSaver Act 2006, that money doesn’t become public until each investor turns 65.

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  113. Jackal,

    Technically it may be possible but politically it is a big gamble.

    Perception says that they are personal accounts (in the holders name) and I’m guessing the people may not take kindly to them being raided.

    I’m more interested in though, the Labour/Greens strategy to combat what will IMHO be a major negative that Winston Peters has bought to the table.

    If we look at the TV3 poll result (admittedly without the NZPower component for the voters to take heed off) out tonight it will be a major problem.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  114. many messages ago, PhotoNz noted:

    It’s really very, very simple. Revenue – costs = profit.

    Basic business sense, no argument there.

    Effectively $100 of electricity costs $95 to make and distribute, leaving 5% profit which was last years average.

    But does $100 of electricity cost $95 to make and distribute?

    The price paid to a generator for electricity they supply is determined by a market making mechanism, and thus what a generator gets paid is not necessarily defined by that generator; statistically, that generator will not determine the price they are paid for their electricity most of the time. They will get paid more than they bid, or not get paid at all.

    Additionally, for many generation options, there is no actual fuel cost, only running costs. Many costs are fixed and occur almost irrespective of amount of generation.

    There are a lot of variables involved, and many of those variables interact between competing interests.

    Yet somehow, there is a nice round reasonable number of profit made by each of the generators, despite them having very different cost basis.

    Does this not strike you as odd? If we assume there is no collusionn or cartel-like operations going on, the only other reasonable conclusions are either that it actually doesnt matter a jot how electricity is generated, or that at the end of the year the expenditures are (presumably quite legitimately and legally) adjusted to make the numbers right, or that there isn’t effective competition in the marketplace.

    In a competitive marketplace there are winners and loosers. Doesn’t seem to be much of that, just business-as-usualness…

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  115. Gerrit

    Technically it may be possible but politically it is a big gamble.

    Perception says that they are personal accounts (in the holders name) and I’m guessing the people may not take kindly to them being raided.

    You do have a point Gerrit. However the majority of people will be more concerned with Mighty River Power remaining in state control than they will be of where the money comes from for re-nationalisation.

    There should be no adverse affect on people’s savings from such a policy, they will still get their savings when they turn 65. The government would simply forgo some income from Kiwisaver investments in exchange for income from Mighty River Power.

    It’s not a major problem… The Greens/Labour and NZ First are simply targeting the same voters with different types of policy, both of which will work. In fact both policies aren’t mutually exclusive, and the next government should consider Winstons’ policy proposal carefully.

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  116. The present state of affairs …….”At 4.4 million people New Zealand is a small country – smaller than Sydney. Yet we have chopped up our electricity sector into bits, privatising some and told them all to compete. The brainlessness has produced a spectacular market failure.”

    “Despite the spectacular failure of free market dogma with the 2007-08 financial market collapse, despite Milton Friedman’s ‘self-regulating market’ nonsense melting down, despite us all now being Keynesian, National refuse to budge from their neoliberal consensus because they can’t operate outside of that intellectual paradigm.”

    From …… http://thedailyblog.co.nz/category/most-recent-blogs/

    Like or Dislike: Thumb up 2 Thumb down 4 (-2)

  117. AICB

    To the layman, that is an obvious shorthand for profit.

    There’s a distinct difference: Profit is what business is left with after deducting such expenses from revenue which made the receipt of revenue possible. Return is what business enjoys above principal amount of investment.

    It was pretty obvious that I wasn’t talking about net profit when I mentioned a 60% return AICB. I was refering to Vectors 6 month to December revenue from electricity of $335 million… EBITDA was $202 million, which is a return of 60%.

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  118. Please stop pretending you know what you are talking about Jackal. It is clear you are trying to pass off a few snippets you have cribbed as actual knowledge.

    Vector is not a gentailer, and is not affected by these reforms. It is a distributor, and hence not relevant to these discussions. That you raise them betrays a total lack of understanding of the electricity market

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  119. Dbuckley – power generation is most definitely a cartel-like situation (though probably not active collusion), as even though the pricing mechanism is an apparently transparent auction, most producers are owned by the same party (the government) and every player know every other player’s cost to produce the non substitutability product.

    Which is what I was getting at before in describing the problem as not necessarily one of retail competition, but ineffective regulation / management of the pseudo-market.

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  120. “the only reason people were willing to tolerate electricity-company price gouging was because the vast majority of the money went to the government, and hence back to them as schools and hospitals. But once it is redirected into private pockets, then that reason simply disappears. Who wants to pay more for power simply so fat-cats can have bigger yachts and another holiday home in Hawaii? Put like that, I doubt even National party supporters would support it.”

    http://norightturn.blogspot.co.nz/2013/04/oh-dear.html

    Like or Dislike: Thumb up 1 Thumb down 3 (-2)

  121. Gregor W – the electricity “market” is even more disfunctional than that. In a functional market, a player’s profit increases as they gain market share. However the marginal cost of generation is higher than the average cost, so players in the electricity market may actually have a reduction in profit if they get a greater market share. This doesn’t encourage competition.

    Trevor.

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  122. Jackal says “EBITDA was $202 million, which is a return of 60%.” For gods sake jackal – why don’t you do everyone a favour and shut up about things you so obviously know nothing about.

    Clue – any financial acronym that starts with EB, is Earning Before…, that’s BEFORE……Interest, Tax, Depreciation, Amortization etc.

    So it’s not profit. It’s got nothing to do with return.

    You should enroll in financial kindergarten, and come back when you’ve learnt what basic financial terms mean.

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  123. DBuckley asks “But does $100 of electricity cost $95 to make and distribute?”

    Last year the big five companies sold just under $10B of power, and made just under $500m after tax profit.

    The after tax profit figure is 4.8% – what Kerry calls “super profits”. If he thinks this is “super profits” then he too should join jackal in some basic financial education.

    I think the whole thing stems from ignorance of the reason for power prices rises by Russel Norman, Gareth Hughes and the Greens.

    Most of the rises have been to build clean green renewable energy, and to correct years of underspending on transmission.

    Contact alone has spent $2.5 Billion.

    Russel dishonestly tries to portray the increases because of massive profits going to Australia, while failing to say 90% of the money stays in NZ, the large majority of that going to government in dividends, tax and gst.

    He’s trying to mislead people.

    Like or Dislike: Thumb up 2 Thumb down 4 (-2)

  124. Kerry says “And the best thing is watching Photo spinning like a top, trying to protect his dividends.”

    I sold my power shares years ago because their profits are pretty small compared to most companies on the NZX. Several years on, the share price is still about 30% lower than what I sold them for.

    Probably the most beneficial aspect of the asset sales is getting Kiwis to shift money from the unproductive housing sector into the productive sector.

    The Greens/Labour want people not only to keep their money into housing, but to shift more away from the productive sector into housing.

    Kerry calls this “brilliant policy”. It would be hard to think of anything more damaging to the future economy, unafordable housing, rent prices etc.

    Like or Dislike: Thumb up 2 Thumb down 3 (-1)

  125. Photo. We want investment in more sustainable and innovative businesses for the future.

    Money being spent again, mostly from offshore, on something we have already bought and paid for, is no better for the country than investment in pushing up land prices.

    It is going to push up our offshore deficit due to interest and off-shoring profits even more with no additional productive industry or infrastructure added, to show for it.
    o
    Photo is being either disingenuous or thick when he fails to understand there is almost no relationship between accounting profit for tax purposes and the income/gains major shareholders can take from a company.
    What was the ROI for Fay and Richtheif for the railways, for instance?

    90% of dividends will not be going to NZ, when the sales have gone through, will it Photo?

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  126. Taxpayers only lose from the loss in value if assets sales/theft gore ahead.

    This is even more of an indication that they are a daft idea and only intended to benefit the large potential shareholders that fund National. And give National politicians their highly paid board figurehead jobs after they leave parliament.

    The fact that National is still determined to push through the sales at any cost to taxpayers proves it is either ideological or motivated by self interest.

    Labour and the Greens should be doing everything possible to stop the theft.

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  127. Kerry says “Photo. We want investment in more sustainable and innovative businesses for the future”

    Yeah right. Contact said the last $2,500 million it’s spent on renewable generation would not have happened under the Greens/Labour policy.

    Kerry says “90% of dividends will not be going to NZ, when the sales have gone through, will it Photo?”

    The Greens/Labour have just done everything they can to scare off small NZ investors, so any “claim” to be worried about how much is in NZ ownership, is obviously fake.

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  128. Kerry says “Taxpayers only lose from the loss in value if assets sales/theft gore ahead. ”

    DUH!!!! Kerry thinks the destruction of income and asset value won’t affect BILLIONS in assets the government will continue to own, or gst, or tax.

    He fails to comprehend that the Greens/Labour plan means the government will
    – lose $100m in gst every year
    – lose $150-$250m in tax every year
    – lose up to $365m in dividends every year
    – billions in asset values

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  129. PhotoNz

    DBuckley asks “But does $100 of electricity cost $95 to make and distribute?”

    Last year the big five companies sold just under $10B of power, and made just under $500m after tax profit.

    The after tax profit figure is 4.8%

    Yep, I hear you. But the $10B comes from a flawed market making process, and I believe the second number can be whatever the companies want it to be. I think these numbers whilst perhaps correct, are without reasonable foundation.

    Just taking WikiPedia numbers, Genesis and Meridian had quite similar annual generation, similar revenues (albeit skewed by the smelter), yet half of the Genesis output comes from coal, pretty much all of Meridians comes from hydro, so you would expect those companies to have a very different cost basis based on cost of fuel. Yet Genesis the coal burner reports a higher profit.

    Both generator’s big assets are well older than the 25 year finance cycle common for this sort of plant.

    There is clearly very much more to this than meets the eye.

    So I’m very unwilling to accept that $100 of electricity cost $95 to make and distribute. There’s a lot of (something) between the actual cost to make and distribute and that $95.

    Like or Dislike: Thumb up 3 Thumb down 0 (+3)

  130. http://thestandard.org.nz/biz-wants-lower-power-prices-so-whose-interests-are-nats-working-for/#comment-623428

    “”So, why are National and the Right pitching a fit at the prospect of the Crown and foreign institutions losing superprofits when that’s the price of households and businesses getting lower power prices? Real businesses are looking forward to paying less for power but National says ‘stuff them, we’re looking out for the Crown’s stealth tax and Origin Energy’s profits’.

    It’s mad. Well, it would be mad if the Right actually believed in helping business. If the Right was about helping business it would be against all rent-seeking in the non-tradable sector, whether it’s the Crown and Origin exploiting the electricity market for super-profits or ‘investors’ riding the housing and rural property markets for tax-free capital gains, because this rent-seeking is vampirism that sucks the life out of the economy, increases our foreign debt, drives up our exchange rates, kills jobs””

    Note the graph of likely ownership after the sales.

    Like or Dislike: Thumb up 2 Thumb down 2 (0)

  131. Bullshit Photo.

    All those losses in tax will be returned by businesses and consumers who do better from lower power prices.

    And slowing the hemorrhage offshore of profits and interest.

    You must be desperate. Bullshitting like crazy and like all RWNJ’s only looking at the tree.
    Crosby Textor threatening to cut off your pay for trolling?

    Like or Dislike: Thumb up 2 Thumb down 1 (+1)

  132. dbcukley says “So I’m very unwilling to accept that $100 of electricity cost $95 to make and distribute. There’s a lot of (something) between the actual cost to make and distribute and that $95.”

    It’s not that difficult. Just look at the financials in Meridians annual report and you’ll see the main costs to make and distribute $100 of electricity are (simply using a percentage of costs compared to the $2.5b revenue)
    – $53 production
    – $19 transmission and distribution
    – $3 staff salaries
    – $6 other operating expenses
    – $8 depreciation on assets
    – $3 finance costs
    – $3 tax
    – $3 profit after tax (for Meridian – average of big five is 4.8%)

    Plus a large number of both positive and negative figures which add up to the last final couple of percent.

    Genesis certainly has higher fuel costs, but lower operating costs, and in addition actually makes money on it’s fuel (gas) sales.

    Like or Dislike: Thumb up 4 Thumb down 1 (+3)

  133. James explains it in a nutshell.

    thestandard.org.nz/loss-of-wealth-no-a-redistribution-of-wealth/

    “”Eddie explored yesterday who stands to lose from falling asset values in electricity companies resulting from lower power prices. The answer: the Crown and foreign investors. Now, JBWere has estimated those book value losses at up to $1.4b for Contact and Trustpower, meaning $4b all up. But, despite the cries from the Right, that doesn’t mean wealth is being lost, it’s moving.
    It’s moving to households and businesses in the productive economy. They’re the ones who will get the wealth that the electricity companies are losing through paying less for their power. Work out the new present value of $700m a year worth of savings on power to households and businesses starting in four years’ time (with odds of Lab+Greens winning at 50%, 8% discount rate) and it comes out at about $4b. The electricity companies’ loss is our gain.
    And that’s just the first round impact. Once you consider the economic benefits of having that extra money circulating and the removal of an incredibly inefficient tax via infrastructure (which is what electricity superprofits are) then the wealth gains for everyone far outweigh the electricity companies’ losses. That’s what BERL’s analysis shows – 5,000 more jobs, nearly half a billion a year more in the economy.
    And, remember, this is only undoing the redistribution of wealth away from families and businesses to electricity company owners that has been going on for the past two decades.
    Funny that the Right’s so-called economic experts aren’t even admitting that side of the equation exists as they run around like chickens with their heads cut off. Why would that be? Could it be neoliberalism is all about grabbing public ‘rents’ for the capitalist elite’s benefit, and they’re now seeing not only that snatched away from them in the electricity asset sales, but also the threat that other rent-seeking will be tackled?””

    All the spin and crap from the right is because this may spell the end of their thieving gravy train at ordinary peoples expense.

    Like or Dislike: Thumb up 2 Thumb down 3 (-1)

  134. More effects of the Greens/Labour Policy

    – generation companies will have to cut maintenance and run their assets into the ground to stay afloat.

    – tidal and wave generation no longer viable.

    – proposed community renewable generation projects abandoned

    “this is still a party living in a hippie fantasy world.”

    from the NZ Heralds Business Editor
    http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10878895

    Like or Dislike: Thumb up 3 Thumb down 1 (+2)

  135. Thanks for the link Photon. It makes me feel sorry for the right wingers with such ideological values. My favourite line was “I was hoping to avoid the topic because, well, electricity markets are just so damn complicated.” Perhaps he should have left it at that??

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  136. fin says ““I was hoping to avoid the topic because, well, electricity markets are just so damn complicated.” Perhaps he should have left it at that??”

    Or perhaps the Greens/Labour whose business experience extents to perhaps the odd cake stall, should have left it alone.

    Or at least a bit more thought into something that destroys everything they’ve been fighting to save for the last two years.

    Like or Dislike: Thumb up 1 Thumb down 3 (-2)

  137. A country is not a cake stall; we can agree on that. A country is not a business. I guess you see it differently, Photon.

    Regarding investment in sustainable energy; The long term security that the new proposal brings may be welcomed by potential investors. They are guaranteed a “fair price”.

    Like or Dislike: Thumb up 1 Thumb down 2 (-1)

  138. fin says “A country is not a business. I guess you see it differently, Photon.”

    Electricity generation is not a country.

    It has costs, and it needs investment, otherwise you get power cuts like Brazil, California, South Africa (the places the policy wants to replicate).

    fin says “The long term security that the new proposal brings may be welcomed by potential investors. They are guaranteed a “fair price”.”

    It’s a possibility. Some analysts have pointed out that it may in fact result in a HIGHER price for generators (and consumers) because the govt will have to factor in the risk of dry weather years into the price.

    So generators will get paid for that risk regardless of if dry weather years actually happen.

    In addition it has been noted that the current returns are pretty low compared to most listed companies, so a “fair price” may need to be higher than current prices.

    Like or Dislike: Thumb up 1 Thumb down 2 (-1)

  139. “a “fair price” may need to be higher than current prices.”
    I guess that would be up to Russel and David. (I can imagine a situation where a premium is paid for sustainable generation)
    But overall, it seems, power prices will drop or else why would “in just two days $600 million [be] wiped off electricity investors savings”

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  140. fin says “But overall, it seems, power prices will drop or else why would “in just two days $600 million [be] wiped off electricity investors savings””

    Shearer and Norman have been unable to say where the $700m savings will come from (private companies only made $250m after tax profit last year).

    It seems the $700m would have to come from around
    – $100m loss of GST (taxpayer loss)
    – $150m loss of tax (taxpayer loss)
    – $200m loss of SOE dividends. (taxpayer loss)
    – $250m loss of private dividends. (ACC, NZ Super, Kiwisaver, Local body ratepayers and private loss)

    The majority of loss is clearly from taxpayers. So if the Greens save consumers $300 per house, they will have to tax an extra $200 per house to make up for it.

    Like or Dislike: Thumb up 3 Thumb down 1 (+2)

  141. Photon says the average household will be $100 better off under NZ Power.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  142. fin mistakenly surmises “Photon says the average household will be $100 better off under NZ Power.”

    You forgot to factor in
    – cost of new generation
    – higher mortgage rates
    – higher rents
    – higher house prices
    – shift of money out of the productive sector
    – shift of investment out of NZ
    – cost of outages
    – loss of ACC investments
    – loss of Kiwisaver investments
    – loss of NZ Super investments
    – loss of value in the 51% still in govt ownership (alone a $4.5 Billion loss)
    – loss of large ratepayer subsidies ($300-$400 per house) if you live in Auckland, Tauranga, Dunedin etc

    Like or Dislike: Thumb up 3 Thumb down 1 (+2)

  143. Never mind the spin from the national trolls ….

    “Yes, it is a relatively large step given recent decades, but this is not the reinvention of Labour as, well, the party of labour. It is not a rejection of the free market, but it is an admission that in this example the free market has failed the people that need the support of their government the most. It is the two biggest opposition parties announcing publicly they don’t believe that New Zealanders should have to choose between heating and eating, and they are prepared to interfere with the market to help make that a reality”

    From

    http://thedailyblog.co.nz/2013/04/23/davidgrad-under-seige-over-nz-power-plans/

    Like or Dislike: Thumb up 1 Thumb down 3 (-2)

  144. National are panicking and hence the hysteria from them and their trolls

    The reality is private sector greed is not going to be able to screw over average ( non share owning ) New Zealanders for electricity if National lose the election .

    Greedy people hate that……

    Hence the tantrums and hysteria

    Like or Dislike: Thumb up 1 Thumb down 4 (-3)

  145. daddy o says “…is not going to be able to screw over average ( non share owning ) New Zealanders for electricity”

    So do these “average” people who have no stake in power shares actually exist?

    Who are they?…..

    Not the 2 million people with Kiwi saver accounts.

    Not anybody who will ever retire and make use of the NZ Super Fund (i.e. everyone who doesn’t die before retirement).

    Not anybody who uses ACC.

    Not anybody who pays ACC – i.e. EVERYBODY who works, who owns a car, or uses anything that needs petrol i.e. car, motorbike, lawnmower etc.

    Not anybody in Auckland, Tauranga, Christchurch, Canterbury, and Dunedin who lives in a house (who all get a big annual rates subsidy).

    That covers 99.9% of the population. Perhaps it’s a hermit somewhere in the bush you’re talking about.

    Like or Dislike: Thumb up 3 Thumb down 1 (+2)

  146. PhotoNZ is being dishonest again, repeating all that National party rubbish ……..

    He’s also squealing like the National rat he is :-)

    Remembering PhotoNZ has supported a child abuser at this site and that devalued his OPINION to zero in my eyes.

    So on one hand we have a Labor/greens plan to stop private free market greed from screwing over New Zealand power consumers.

    And on the other we have a pro-national, child abuse supporting troll telling us getting ripped of for our power is good for us and we are doomed if the greens and Labor regulate.

    Your a sick national party joke PhotoNZ ……….. dont you have some child abusers to go defend on the internet somewhere ???????

    Like or Dislike: Thumb up 1 Thumb down 3 (-2)

  147. daddy o – the subject is power generation.

    You are welcome to crawl out of your sewer and debate the subject.

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

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