21 Apr 2013

Energy company shares fall on Labour's power plans

6:05 pm on 21 April 2013

Share prices of listed energy providers Contact Energy and Trustpower have continued to plunge in the wake of plans announced by Opposition parties to overhaul the electricity system.

The Labour and Green parties say that, if elected in 2014, they would set up a Crown entity called New Zealand Power that would buy electricity from generators at a set price and then pass the savings on to consumers.

Business lobby groups have labelled the plan as economic vandalism and ludicrous, though energy analysts say the single buyer model is common in other countries including the United States.

On Friday, shares in Contact Energy shares fell as much as 34 cents to $5.12 before recovering to end the day at $5.31, while Trustpower shed as much as 56 cents to $7 before closing at $7.18.

Energy network company Vector is a regulated business and its chief executive Simon Mackenzie says the Labour-Green plan should not be dismissed out of hand.

Mr Mackenzie says Labour is looking to simplify regulation around lines businesses and his company welcomes that.

He says the proposal is something that should be debated because there are advantages and disadvantages with all models.

Meanwhile, a fund manager says Labour and the Greens' plans to overhaul the electricity system could force the price of Mighty River Power shares below the indicative range set out in its prospectus.

Harbour Asset Management's Craig Stent says the plans could well become government policy.

Mighty River Power's share sale price, indicated at between $2.35 to $2.80 in the prospectus, is due to be announced on 8 May, following a bidding process among professional investors.