Privatisation will increase power prices

On average, privately-owned electricity companies charge 12% more for electricity than publicly-owned ones. Privately-owned electricity companies have complained to publicly-owned ones that they are not charging enough for the privately-owned companies to make a profit and the CEO of Contact Energy has said that electricity prices need to rise for private investors to make a profit.

Publicly-owned power companies can make a profit for the government while charging less than privately-owned electricity companies because the government's cost of borrowing is only 4% whereas a private investors cost of borrowing is around 8%. That means that to cover its interest costs the government just needs a dividend of over 4% but a private investor needs twice that much.

So, what would happen if nearly half of the electricity companies were sold to private, often overseas, buyers? They would demand higher profits. The boards of companies would be legally required to act in their interests - it doesn't matter if 51% remains in government ownership, the private shareholders rights to a higher profit would have to be respected. To make higher profits, they would charge higher electricity prices.

New Zealand has some of the most affordable electricity in the world because the publicly-owned companies hold the price down. If they were privatised, that anchor would disappear and prices would skyrocket.