MCY Mercury NZ ( MRP Mighty River Power)

[Snoopy]

You are correct in saying the devil is in the detail and Labour/Greens announced their policy driven by a timetable coinciding with the same day that the MRP shares went on sale, and without giving themselves enough time to think through the 'how'. Without the 'how' the Labour/Greens have opened themselves up to wide criticism and are now in a position they will find it difficult to move away from if they are elected.

Labour/Greens have not publicly announced the detail of their policy Vaygor, because that detail will be developed with consultation.

The main point of difference between you and I is that you state that Electricity injection prices will be dictated with NZ Power in the loop and I have never heard anything from Labour/Greens about this

If you look at the Labour website:

http://www.labour.org.nz/nz-power

"Labour will fix this problem by introducing a new agency, NZ Power, to act as a single buyer of power for households."

Now you might think this allows other buyer seller relationships to exist outside of Government/Households. However if you keep on reading you will find this:

"Labour will create a new agency called NZ Power will act as a single buyer of wholesale electricity."

That means the single buyer will act for households, industry, government services and everything. The policy could not be expressed more clearly and succinctly than that

and you won't provide the source. Labour/Greens have only ever referred to bulk-buying (not forced-selling) with NZ Power becoming one of the many non-residential bulk-buyers, so competition would still exist.

See above. No other non-residential bulk buyers - eventually. There may be a phasing in period where existing non-residential bulk buying contracts are honoured. If you have a single bulk buying authority you have the mechanics for government mandated price control (forced selling) if necessary.

That aside, either NZ Power insert themselves as middle men thus adding to the contracting complexity and cost of the whole set-up which already includes Transpower and the Lines Companies in addition to Generators and Retailers,

Correct. This solution will create another layer of bureaucracy and cost. That might mean it shouldn't be done. But it doesn't mean it can't be done.

or NZ Power replaces the retailers thus removing Generator-Retailer swaps and adding huge risk to both themselves and the Generators, and both will need to price in this risk accordingly.

A single NZ Power can still control and match quantities in terms of demand and supply as seen by the grid nodes. At the household day to day level demand for power is not related to price. Households do not receive signals as to what the half hourly contract prices are at the wholesale level. So households cannot respond to pricing signals.

My view is that economically, either approach is self-defeating.

There will be consequences for sure, but there are consequences now. Much higher power prices for voters compared to big industrial companies that do not get a vote.

SNOOPY

[Snoopy]

Neither of those models were sustainable. That is why they don't exist anymore.

NZED and Electricorp operated under roughly the same operational model. Contact Energy was split off from Electicorp ostensibly to provide competition. In reality it was to get a rag tag of potentially troublesome assets off the government books IMO. Contact has since proved everyone wrong and has emerged as arguably the best run power company in New Zealand.

Neither NZED or Electricorp were broken in the sense that change was required. The further splitting of Electricorp into three state owned enterprises: Meridian, Mighty River Power and Genesis Energy, was an alternative model of the day. The John Key lead partial privatization of these three is another alternative model. Just because something is changed, does not mean that what was there before was broken.

SNOOPY

[Vaygor1]

The main point of difference between you and I is that you state that Electricity injection prices will be dictated with NZ Power in the loop and I have never heard anything from Labour/Greens about this and you won't provide the source. Labour/Greens have only ever referred to bulk-buying (not forced-selling) with NZ Power becoming one of the many non-residential bulk-buyers, so competition would still exist.

If you look at the Labour website:

http://www.labour.org.nz/nz-power

"Labour will fix this problem by introducing a new agency, NZ Power, to act as a single buyer of power for households."

Now you might think this allows other buyer seller relationships to exist outside of Government/Households. However if you keep on reading you will find this:

"Labour will create a new agency called NZ Power will act as a single buyer of wholesale electricity."

That means the single buyer will act for households, industry, government services and everything. The policy could not be expressed more clearly and succinctly than that. SNOOPY

Hi Snoopy.

The link http://www.labour.org.nz/nz-power which I provided you with is propaganda, and not policy. As you state in a previous post in this thread on 15-12-2013, 10:21 AM, it is a 'theme'.

In the exact same webpage this Labour theme also states "Labour will fix this problem by introducing a new agency, NZ Power,to act as a single buyer of power for households."

So this theme, or 'policy' as you put it is clear? A web search shows that Labour contradicts itself on this issue time and time again. When are they going to make up their mind?

On the same webpage, this 'policy' states it "will do a similar job to Pharmac - use bulk buying to keep prices low". Refer to http://www.stuff.co.nz/dominion-post...es-instability for why this comparison is tenuous at best.

[Vaygor1]

At the heart of the Labour-Greens policy/theme is a man named Frank.A.Wolak from Stanford University. http://www.stanford.edu/group/fwolak/cgi-bin/

Labour quote him time and time again on what is wrong with the current system. They have continually cited a report he did in 2009 that said the energy generators were making “super profits”. So bear in mind this is a professor whose work stands at the heart of Labour Greens case for change.

Refer to this article that originally came from BusinessDesk on 2nd August this year:
http://www.scoop.co.nz/stories/BU130...wolak-says.htm

So the guy whose work has been used by Labour and Greens to justify their nationalisation policy has said their policy is a “sham”.

[Vaygor1]

This issue of Labour/Green policy could be viewed now as a deviation from MRP. But in my view it is the most fundamental factor affecting MRP's share price at the moment Also, to clarify I declare I am in no way a labour or national or greens or nz first, or act, or anything supporter/member/affiliate. Good things can be gained from all of these crowds, the extent of which depends on who is leading the show for each party at the time.

There is an ongoing healthy debate in this thread between Snoopy and myself about whether the labour/green 'policy' is in fact one. Or is it just a theme, or an idea, or a proposal? The following, which highlights the importance of this issue, apparently occurred in July this year when Gareth Hughes went into a prominent share-broking firm to tell the staff there how the Greens’ single-buyer policy was going to work.

A few unkind (but terribly polite) people with grey matter attending asked him some well thought through questions.

His answers were not so well thought through.

Then he got a bit flustered.

Then he said, “Well it’s just a proposal, and we’re always happy to receive your input.”

At which point one of the directors thought it best to tell him there’s a difference between a proposal and a policy, and he’d better learn to live with his policy.

[Snoopy]

If you look at the Labour website:

http://www.labour.org.nz/nz-power

"Labour will fix this problem by introducing a new agency, NZ Power, to act as a single buyer of power for households."

Now you might think this allows other buyer seller relationships to exist outside of Government/Households. However if you keep on reading you will find this:

"Labour will create a new agency called NZ Power will act as a single buyer of wholesale electricity."

Vaygor I think if you look at things with a different perspective you will see no contradiction. A single wholesale buyer for everyone is also a single wholesale buyer for households. Once you accept the two quoted statements are not contradictory, then the ability to dictate price follows too. And also all of your theoretical market concerns disappear as the 'contestable market' as you know it ceases to exist.

SNOOPY

[Snoopy]

On the same webpage, this 'policy' states it "will do a similar job to Pharmac - use bulk buying to keep prices low". Refer to http://www.stuff.co.nz/dominion-post...es-instability for why this comparison is tenuous at best.

I agree with this article in that the building of new power stations will become a tenuous business prospect. But if no new power stations are needed for ten years, I can see the single buyer model working very well for ten years.

SNOOPY

[Vaygor1]

I agree with this article in that the building of new power stations will become a tenuous business prospect. But if no new power stations are needed for ten years, I can see the single buyer model working very well for ten years. SNOOPY

Not so. They can sign contracts to buy once the new station comes online. Nothing new there.

I dont understand your sentence Belgarion. You can't bring a station online until it is built, and by introducing a another monopoly called NZ Power into the system, who will attempt to become their own beast of super-profit ticket clippers just like Transpower is, no one is going to build one.

[macduffy]

Yes, the electricity market has certainly changed in recent times. Until a few years ago, there was a place for a, possibly state owned, peaking power station that could have been onsold to the highest bidder as its output was absorbed by a growing market and replaced with a further station. Gas-fired probably, as that was the obvious fuel for its purpose. But market conditions have changed considerably as new wind and geothermal plants have been built and demand has stagnated.

[Vaygor1]

NZED and Electricorp operated under roughly the same operational model. Contact Energy was split off from Electicorp ostensibly to provide competition. In reality it was to get a rag tag of potentially troublesome assets off the government books IMO. Contact has since proved everyone wrong and has emerged as arguably the best run power company in New Zealand.

Neither NZED or Electricorp were broken in the sense that change was required. The further splitting of Electricorp into three state owned enterprises: Meridian, Mighty River Power and Genesis Energy, was an alternative model of the day. The John Key lead partial privatization of these three is another alternative model. Just because something is changed, does not mean that what was there before was broken.

SNOOPY

They were broken alright.

Following is an excerpt from a paper from the New Zealand Institute for the Study of Competition and Regulation (ISCR)
http://www.iscr.org.nz/f310,14092/Ch...rm_History.pdf

In 1985 it was apparent that in terms of generation, at least, the electricity industry was not performing well. As noted in the Ministry of Energy's review in 1984, the Electricity Division's performance measurement was complicated by electricity pricing being set externally, it paid no tax, it required considerable capital, and its "essential nature" and "monopoly role" made it a target for industrial action. The review further noted that because the Division was an essential part of the country's infrastructure, it could influence the scale and direction of economic development, thus attracting political and economic attention.

A 1985 Treasury review of electricity planning and electricity generation costs made especially sober reading. Noting the significant share of the country's total investments represented by the electricity sector, the report found that prevailing arrangements were failing to deliver electricity to New Zealand at lowest practicable cost - the driving policy of the day. Over-investment in generation arose from systematic and gross over-estimates of demand growth, ranging from 33% to 51% for the periods considered. Projects were characterised by commissioning delays, large cost over-runs and electricity production costs well in excess of those predicted (at times up to 100% higher). It even found that generation investments were not undertaken on a cheapest-first basis, whether using simple or more refined investment selection rules. Aside from the general need to reform New Zealand's state trading enterprises, electricity was especially in need of change.

Similar concerns were highlighted in a 1987 Audit Office report, which noted delicately that "one could conclude that money committed [to new hydro generation projects 1977-1984] may have been better utilised elsewhere for the benefit of the nation". The report also noted that the economic criterion for construction of new generation was not adjusted downwards despite major reductions in electricity demand growth forecasts - in other words investment was made in projects that were uneconomic even given available revised forecasts. It further criticised governance arrangements surrounding loans for these schemes, where the Crown offered Supplementary Operating Loans to Electricity Supply Authorities, thus assuming all financial risks with the individual schemes despite there being no financial or time limits placed on availability of these loans.

It can only be surmised whether similar inefficiencies occurred at the distribution and retailing level, as scant operational data for this period are available, commercial performance standards were not mandated or utilised, and performance appraisals were not apparently required. The electricity system of the time would appear to have been driven by political (central and local government), engineering and labour imperatives as much as by the interests of taxpayers and electricity consumers.