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Why Doug Heffernan wants you to keep paying too much for power

Written By: - Date published: 7:32 am, April 29th, 2013 - 52 comments
Categories: capital gains, minimum wage, monetary policy, referendum - Tags:

John Key has committed to giving up the National Party’s leadership (and, presumably, politics altogether) if he loses the next election. That didn’t stop him from committing the next National Government from reversing NZ Power and putting up electricity prices when it comes to power (what are we talking? 2020? 2023?).

It got me thinking about the people who are so keen to kill NZ Power in its cradle and why. I’ll be doing a series of posts on them and their motivations over the coming days.

Let’s start with the most constitutionally dubious.

Doug Heffernan is the CEO of Mighty River Power, currently a fully owned government agency with the misnomer ‘Mixed Ownership Model Company’. The man is a public servant, a taxpayer-paid employee of our government. In fact, he’s possibly the most well paid taxpayer-paid employee in New Zealand history.

Heffernan has been CEO of Mighty River since it was created when ECNZ was carved up in the culmination of the disastrous Bradford Reforms in the 1998. In that time he has been paid $15 million. His pay has nearly quadrupled to $1.5 million. This year, he’s getting an extra $500,000 to stay on past the sale (as if he’s going anywhere) and has reconfirmed for at least another year.

His pay is expected to rise even further after the sale. For reference, Contact’s CEO gets $1.5m too, plus half a million in shares. Heffernan will expect similar after the sale. And, once you’re being paid in shares, you have a huge financial interest in the share value climbing, no matter what.

In fact, if I’m reading the Offer Document correctly, Heffernan can buy up to $750,000 shares in the float, most of them paid for by Mighty River (ie gifted to him by me and you). Of course, he wants a big surge in the float due to over-subscription as institutional investors buy out retail investors. It would make him a butt load of money. And that will only happen if lots of ‘mums and dads’ and lots of corporates think Mighty River is a good bet.

NZ Power is a direct threat to the health of Heffernan’s bank accounts. It will cut Mighty River’s profits by about two-thirds – with a similar effect on the share price. It will mean that its directors will have to cut their clothe, and their over-blown executive pay packets.

So, no wonder Heffernan, the most highly paid public ‘servant’ of all time, took the extraordinary and unconstitutional step of commenting on political parties’ policies. He called NZ Power ‘socialist‘ (as if that’s a bad thing) because it means lower power bills for you and me, which means less pay and lower share values for him.

Remember, when Doug Heffernan pops up to say that he doesn’t think it’s a good idea for you to pay less for power that he has made millions off the current broken system and stands to make millions more if we stick with National’s broken system. Doug Heffernan’s bank accounts will be a lot more healthier if you keep on paying too much.

See also:
Why Lewis Evans wants you to keep paying too much for power
Why Allan Millar wants you to keep paying too much for power

52 comments on “Why Doug Heffernan wants you to keep paying too much for power ”

  1. Mel 1

    Nact government policy is like an onion, in that once you peel off the first layers you find layer upon layer of other things – duplicity, hidden agendas, and cronyism. It is surprising that most of the MSM doesn’t report on these other layers of current news issues.

    My local paper and Stuff just quote the heads of power co’s, the views of politicians and others in the industry verbatim. There doesn’t seem to be any ‘scratching below the surface’ to look at why such views and ideas are expressed and put them into a context or world view.

    As NZers we need to challenge the level of shallow reporting in our media and not accept the status quo.

    Also, we need is a Government that represents the best interests of NZers and our NZ environment. A Government that does not ascribe to the socially and morally destructive neo-liberal agenda.

    • Paul 1.1

      No surprises that the corporat media does not report as you would hope or expect. They are owned by corporations who have benefited from the neo-liberal revolution. They are repeaters, not reporters.

      • Rodel 1.1.1

        Paul..’repeaters not reporters’… I like that… should be said by everyone…sounds like an Obamaism or JFK….’Ask not……..’

    • Tom Gould 1.2

      Heffernan is bought and paid for. The question is, will he resign the day after the 2014 election should the government change? That is the real test of his courage and integrity. Someone should ask him.

  2. Saarbo 2

    Yes, its amazing that Heffernan feels confident enough that he can come out in main stream media with such a self serving suggestion. I think it really does make a statement about our MSM.

    Running MRP wouldn’t be the toughest job in the world, its a monopoly ffs. Put Heffernan into a position like Rode Dukes where he would have to compete in the competitive retail environment and see how he goes.

    This is how Board/CEO relations seem to work…Board pay CEO huge salaries and bonuses while CEO’s focus on how they can convince shareholders to increase Board payments. It is a cycle that doesn’t seem to have any limits.

    I suggest that Labour/Greens make getting rid of him the 1st cost saving if they win next year.

    • Running MRP wouldn’t be the toughest job in the world, its a monopoly ffs.

      Agreed entirely. The bulk of its generation and profit come from some good old Ministry of Works designed and constructed hydro electric dams dare I say it constructed under a system that Heffernan obviously considers to be socialist.

      The business model is it rains, the turbines spin and create something that is essential for modern life. It must be the easiest business in the country to run.

      Paying someone four times what the PM gets to run this is beyond comprehension.

      • Poission 2.1.1

        Running MRP is not rocket science,if it was rocket science you could get 3 NASA CEOs.or 15 russian space program CEOs

    • One Anonymous Knucklehead 2.2

      I suggest that Labour/Greens make getting rid of him the 1st cost saving if they win next year.

      No. Make stamping out his behaviour the focus of a public inquiry into conflicts of interest in the public service – this corruption doesn’t end with one CEO.

      When interests conflict
      Conflicts of interest are not wrong in themselves, but they should be properly identified and effectively and transparently managed. When a conflict of interest has been ignored, improperly acted on or influenced actions or decision-making, the conduct (not the conflict itself) can be seen as misconduct, abuse of office or even corruption.

      I see no reason why this couldn’t run in tandem with a Serious Fraud Office investigation into the National Party.

  3. Macro 3

    Their greed is overwhelming!! Heffernan’s opinion on the matter is worthless. He has too much vested interest in the matter. Any self-respecting media organisation worth its salt would realise that.

  4. North 4

    Who would NOT say this is a scandalous rort ?

    More importantly how many of that electorally significant number of New Zealanders who failed to vote last election would NOT say this is a scandalous rort ?

    We can forget all about the ridiculous “socialist” cant engaged by Heffernan. Eddie explains perfectly well that each and every day of his life the highway robber in question has 4,000 dollar reasons to do a sideline in catatonic cossack dancing.

    In anticipation of BM and DumbArse and other ShonKey Python idolaters/apologists screeching back “Heffernan coined it hard under Labour…..so there !” – facile and irrelevant. This is now boys and girls. Brand Key’s inherent flaws are painfully apparent and we’re invoking the unfitness for purpose provisions of the Consumer Guarantees Act. The contract is to be cancelled for fundamental breach.

    As churlish as it might be all that remains to be said is this – “Let Heffernan and the rest of the czars eat cake !”

  5. Jackal 5

    Eddie

    It will cut Mighty River’s profits by about two-thirds – with a similar effect on the share price.

    Actually it won’t. There’s no way to really tell what the effect will be on profits at this stage, because they’re dependent on how each business manages the changes and the effect from other investment and debts etc. Net profits are currently reasonably low at 4.8% of revenue for the five main power companies mainly because of increased investment, lots of overly paid upper management and high debt levels.

    The increased investment into infrastructure will be ending around the same time the asset sales agenda was meant to be finalized, so that the fat cats can sit back and watch the money pour in without having to spend much on maintenance or further development. They did the same thing with the privatisation in the 90’s, which is a proven failure. In other words, profits have been artificially lowered and were set to increase once the companies were (partially) privatised.

    The effect of NZ Power on dividends will be a potential $60 to $90 million reduction. Currently 2/3 of the dividends go to the government with the remaining 1/3 going to people like Heffernan. That’s a 3 to 4.5% reduction for private shareholders on the 2012 dividend payout from the five main power companies.

    However what will cause a bigger problem is all the fear mongering by the right wing causing a lack of investment in the first place… It’s difficult to say how effective their propaganda will be, but it’s apparent that they’re currently shooting themselves in the foot to try and discredit the policy.

    • Lightly 5.1

      you want to check that again. The net effect on govt revenue is $60-$90m – the loss of dividends is much larger.

      • Jackal 5.1.1

        The loss of dividends is much larger… What makes you think that Lightly? Government revenue from these companies is in the form of dividends. However you’re correct, the $60 – $90 million is the effect on the government’s books. That won’t cause a huge change in the percentages above. Not as much profit for people rich enough to invest… I can’t say that I’m all that concerned. I’m far more concerned with people being able to heat their houses properly.

  6. King Kong 6

    Come on everyone, if we can help undermine the value of even more companies then I reckon we can ensure not only drastically reduced wages for management, but for everyone.

    If everyone was earning nothing then we wouldn’t have anything to be jealous of anymore.

    • Kevin Welsh 6.1

      Or you could just comment on the post instead of picking your nose and commenting on what you found on your finger.

    • North 6.2

      As I said KK – facile and irrelevant. Forgot to say “whistling in the dark” but that too. Though not for any real care for New Zealand.

    • RedLogix 6.3

      If everyone was earning nothing then we wouldn’t have anything to be jealous of anymore.

      You should be pleased then that John Key’s government is pushing hard towards that goal.

  7. Sanctuary 7

    “…I suggest that Labour/Greens make getting rid of him the 1st cost saving if they win next year….”

    Here is an interesting question. Doug Heffernan’s outburst is clearly political. Yet no formal mechanism exists to remove him should the left bloc win the next election. Is it time for us to admit our senior public service is riddled with political appointments and for political parties to publish lists of who they will appoint to a range of key roles once they win? For a start, such lists will give political observers a genuine hint as to how radical an incoming adminitration plans to be. If Heffernan was slated to be replaced by Steve Maharey, then you would know not much change was planned. But if you saw a his named crossed out and Sue Bradford’s written in…

  8. Wayne 8

    To begin with the CEO of an SOE is not a public servant, in the accepted sense of the term. Second govt policy for his company is the mixed ownership model. He would have to support it or resign.

    So he is perfectly able to speak in support of govt policy that affects his company, and also critique a policy that would seriously reduce its profitability. And given that he will have to be accountable to a Board of a company that will have govt shares and private shares, the value of the shareholding is a key issue for him.

    The Nats are the Govt, not Lab/Green. Of course if the Govt changes, he might have to reconsider his position, except that protecting shareholder value will be a principal duty for him, so I imagine MOM companies will be critical of any change that would seriously affect shareholder value (as oppossed to a small change).

    • RedLogix 8.1

      You may be technically correct, but according to you own logic Heffernan will now pretty much have to resign in the event of a Labour/Green govt being formed in 2104.

      He would have been better advised to keep his mouth shut.

    • Lightly 8.2

      the CEO of an SOE is paid by a public body. He’s not part of the civil service, but the same rules about staying out of the political fray should apply. Keeping his mouth shut about NZ Power would not have been a criticism by him of National’s asset sales. You haven’t seen Genesis’s or Meridian’s bosses commenting.

    • North 8.3

      And in the accepted sense of the term you are “splitting hairs” Wayne, in the absence of your having anything non-facile and relevant to say about the scandalous remuneration of the likes of Heffernan.

      This general scenario is emblematic of neo-liberal rot which carries with it the wicked cult of the CEO – very nicely identified by Eddie’s timely post. Bang on all you wish Wayne. You’re on a hiding to nothing mate.

    • Murray Olsen 8.4

      Thank you Wayne, for providing such a clear argument in favour of getting rid of SOEs and going back to the departmental model that worked. Get rid of all the CEOs. After all, we’d be doing them a favour because they could go straight into real private enterprise where the sky’s the limit on their remuneration and they don’t have to worry about politicians or democracy. They’re so good, they tell us, that GE, Boeing and the Mattel Toy Company must all be lining up for them. After all, pay peanuts – get monkeys, whereas now we have pay bloated salaries – get parasitic infections.

    • “The Nats are the Govt, not Lab/Green. Of course if the Govt changes, he might have to reconsider his position…”

      Wayne, if Lab/Greens win power, Heffernan will be resigning and gone by lunchtime.

      • Wayne 8.5.1

        But of course it will be a MOM company by then. so I guess it will not be the same rules as would apply for a CEO of a SOE. In the latter case a CEO probably would have to resign in the event of a major conflict with Govt.. But I guess a MOM CEO will need to have a good relationship (or at least an adequate one) with the Govt of the day.

  9. Peter 9

    It seems that many Kiwis have the naive belief that if individuals act in self-interest it must be in the best interests of the majority. NACT have certainly exploited this concept.

  10. 29 April 2013

    PROTEST! TODAY!

    DATE: Monday 29 April

    TIME: 1 – 3pm

    WHERE: Outside the Financial Markets Authority (FMA) Auckland Office
    Ernst and Young building
    2 Takutai Square
    Britomart

    MAP: http://www.britomart.org/financial-markets-authority

    WHY: To a lodge formal complaint with the CEO of the FMA, Sean Hughes against Prime Minister John Key, Minister of Finance Bill English, Minister of Economic Development Steven Joyce and Minister of State-Owned Enterprises Tony Ryall.

    1) For allegedly unlawful market manipulation of the Mighty River Power share offer as ‘information insiders’ under the Securities Markets Act 1988.

    http://www.legislation.govt.nz/act/public/1988/0234/latest/DLM140409.html

    8E Information insider must not advise or encourage trading

    An information insider (A) of a public issuer must not—

    (a)advise or encourage another person (B) to trade or hold securities of the public issuer:

    (b)advise or encourage B to advise or encourage another person (C) to trade or hold those securities.

    Section 8E: inserted, on 29 February 2008, by section 5 of the Securities Markets Amendment Act 2006 (2006 No 47).

    8F Criminal liability for insider conduct

    A person who contravenes any of sections 8C to 8E commits an offence (see section 43 for the maximum penalty of 5 years’ imprisonment and a $300,000 fine for an individual or a $1,000,000 fine for a body corporate) if the person has actual knowledge—

    (a)that the information is material information; and

    (b)that the information is not generally available to the market; and

    (c)in the case of a contravention of section 8D, of any of the matters set out in section 8D(a) to (c).

    Section 8F: inserted, on 29 February 2008, by section 5 of the Securities Markets Amendment Act 2006 (200

    2) For recent advertisements of the Mighty River Power share offer being ‘misleading and deceptive information’ under the Securities Markets Act 1988, because they are not alerting potential investors to the increased risk that prompted the supplementary disclosure statement being issued on 22 April 2013, arising from the Labour/ Green ‘NZ Power proposal’.

    http://www.legislation.govt.nz/act/public/1988/0234/latest/DLM140427.html

    Market manipulation

    Heading: inserted, on 29 February 2008, by section 5 of the Securities Markets Amendment Act 2006 (2006 No 47).

    11
    False or misleading statement or information

    A person must not make a statement or disseminate information if—
    (a)a material aspect of the statement or information is false or the statement or information is materially misleading; and

    (b)the person knows or ought reasonably to know that a material aspect of the statement or information is false or that the statement or information is materially misleading; and

    (c)the statement or information is likely to—

    (i)induce a person to trade in the securities of a public issuer; or
    (ii)have the effect of increasing, reducing, maintaining, or stabilising the price for trading in those securities; or
    (iii)induce a person to vote for, or vote against, a transaction, or to abstain from voting in respect of that transaction.

    Section 11: substituted, on 29 February 2008, by section 5 of the Securities Markets Amendment Act 2006 (2006 No 47).

    http://www.legislation.govt.nz/act/public/1988/0234/latest/DLM140428.html

    11A Criminal liability for false or misleading statement or information

    A person who contravenes section 11 commits an offence (see section 43 for the maximum penalty of 5 years’ imprisonment and a $300,000 fine for an individual or a $1,000,000 fine for a body corporate) if the person has actual knowledge that the statement or information is false in a material aspect or is materially misleading.

    Section 11A: inserted, on 29 February 2008, by section 5 of the Securities Markets Amendment Act 2006 (2006 No 47).

    http://www.legislation.govt.nz/act/public/1988/0234/latest/DLM140438.html

    13 Misleading or deceptive conduct generally (for dealings in listed and non-listed securities)

    (1)A person must not engage in conduct, in relation to any dealings in securities, that is misleading or deceptive or likely to mislead or deceive.

    (2)To make the position clear, this section applies more broadly than the rest of this Part and so applies to securities whether listed or non-listed and to all dealings in securities (not only trading).

    Section 13: substituted, on 29 February 2008, by section 5 of the Securities Markets Amendment Act 2006 (2006 No 47).

    http://www.legislation.govt.nz/act/public/1988/0234/latest/DLM140475.html
    _________________________________________

    EVIDENCE that Prime Minister John Key, Minister of Finance Bill English, Minister of Economic Development Steven Joyce and Minister of State-Owned Enterprises Tony Ryall are ‘information insiders’:

    https://www.dropbox.com/s/ung4048v4cgtul7/Slevel6.3-c13031716040.pdf

    Official Information Act reply from the Minister of State-Owned Enterprises Tony Ryall, dated 17 March 2013:

    “… I can advise that Cabinet has delegated authority to a group of Ministers to set the final price for shares in the Mighty River Power share offer. The group of Ministers is the Prime Minister, the Minister of Finance, the Minister for Economic Development also Associate Minister of Finance Steven Joyce, and the Minister of State-Owned Enterprises.”

    In response to my question:

    “2. Please provide the information which confirms HOW a ‘good price’ for Mighty River Power is/has been calculated.”

    ANSWER:

    ” I have decided to withhold all of the documents covered by your second question in full under one or more of the following sections of the Official Information Act 1982, as applicable.

    * Section 9(2)(b)(ii) – to protect the commercial position of the person who supplied the information, or who is the subject of the information.

    * Section 9(2)(f)(iv) – to maintain the current constitutional conventions protecting the confidentiality of advice tendered by ministers and officials,

    * Section 9(2)(i) – to allow the Crown to carry out commercial activities without disadvantage or prejudice, and

    * Section 9(2)(j) – to enable the Crown to negotiate without disadvantage or prejudice.

    In making my decision, I have considered the public interest consideration in Section 9(1) of the Official Information Act.

    _______________________________________________________

    EVIDENCE OF ALLEGED ‘MARKET MANIPULATION’ by Prime Minister John Key, Minister of Finance Bill English, Minister of Economic Development Steven Joyce and Minister of State-Owned Enterprises Tony Ryall:

    The following articles and Press Releases:

    http://www.scoop.co.nz/stories/HL1304/S00153/pm-post-cabinet-press-conference-22-april-2013.htm

    PM Post-Cabinet Press Conference – 22 April 2013
    Monday, 22 April 2013, 7:17 pm
    Article: Anne Russell
    PM: Mighty River Power| NZ Power| National’s Potential Coalition Partners

    http://www.scoop.co.nz/stories/PA1304/S00451/labour-greens-power-plan-economic-sabotage.htm

    Labour-Greens Power ‘Plan’ Economic Sabotage
    Tuesday, 23 April 2013, 11:55 am
    Press Release: New Zealand Government

    Hon Steven Joyce

    Minister for Economic Development
    23 April 2012 Media Statement

    Labour-Greens Power ‘Plan’ Economic Sabotage

    ____________________________________________________________________________

    http://www.scoop.co.nz/stories/PA1304/S00438/govt-files-supplementary-disclosure-on-mighty-river-power.htm

    Govt files supplementary disclosure on Mighty River Power
    Monday, 22 April 2013, 4:05 pm
    Press Release: New Zealand Government
    Hon Bill English

    Minister of Finance

    Hon Tony Ryall

    Minister for State Owned Enterprises

    ____________________________________________________________________________

    EVIDENCE of ‘misleading and deceptive information’ – full page advertisements in the Sunday Star Times and NZ Herald on Sunday dated 28 April 2013:

    “The Mighty River Power Share Offer is open.
    SHARE IN IT NOW. ..”

    Penny Bright
    A Spokesperson for the Switch Off Mercury Energy group

    • dumrse 10.1

      Economic sabotage is treasonous. Get your spokesperson protesting organisation to sort that out.

  11. Mary 11

    So will NAct give the shares back? Doubt it. It’ll make people pay again. That’s really going to make the current share offer extra attractive.

  12. prism 12

    Junkie’s asset sales are addictive – get involved and get a shot of money. No wonder that Hef wants to be in the fray.

  13. Poission 13

    Bertram provides a nice analysis on the imaginary ROI of the energy companies by the fictional revaluations of assets In the case of MRP The historic cost of the fixed assets is 2.2 billion,the revalued (imaginary like Enron) is 5.1 billion.

    http://www.interest.co.nz/opinion/64189/geoff-bertram-proposes-nz-regulate-electricity-pricing-so-only-indexed-historic-costs-

    • ghostrider888 13.1

      ahhh, financial imagination, sort of like the “constructive ambiguity” of the Reserve Bank (and Treasury)

  14. Wayne (a different one) 14

    The camapign against asset sales is really ramping up now – 6 people turned out in Hamilton the other day, of which 3 thought it was a free concert and, 12 people turned out in Nelson over the weekend.

    The public are not with your left wing propoganda on this – Labours policy announcement is as I have said before is nothing but ‘economic sabotage’ – even left wing commentators, Barry Soper, Colin Espiner, Tim Watkin and bless her Pam Corkery, all agree.

    Unthought through policy made on the hoof will cost Labour dearly at the polls.

    If it waddles like a duck and quacks like a duck – its a duck!

    • Murray Olsen 14.1

      On the other hand, people may not have turned out to march because they believe the Labour/Greens policy has solved the issue. That’s the thing when something doesn’t happen – it’s hard to know why. I have equally as much faith in the social democratic position that the majority of non voters support Labour.
      BTW – selling state assets on the cheap to your mates is economic sabotage. Proposing a method to use them to make some of our kids healthier and lessen economic burdens is good responsible, if timid, use of the state.

      • One Anonymous Knucklehead 14.1.1

        I note the photos on Karol’s post prove that Wayne is lying. As usual, we must ask whether Wayne makes up his own lies, or whether he simply sponges up whatever he’s told like a very dull parrot.

    • karol 14.2

      I don’t know where you are getting your information from, Wayne, but it looks pretty flawed.

      • georgecom 14.2.1

        Wayne got that rally mixed up with the ACT national convention, 12 people on the board plus 3 members. He has a habit of getting his events confused.

    • North 14.3

      Barry Soper left wing ? What’ve you been imbibing Different Wayne (of which I’m not convinced) ? Soper is a hack in the worst sense. Nothing more. I still laugh when I recall how he tried to take over Winston’s meeting with McCain. Got more than he bargained for with Winnie wearing his Minister of Foreign Affairs hat.

      • Wayne 14.3.1

        I can assure you that the Waynes are two different people. For instance I do not actually think Barry Soper is left wing, seems centrist to me (or simply professional so that you cannot tell).

    • “Wayne (a different one)” – I don’t know why you’re so happy to support the 1% and oligopilies. Do you really think they care about you?

  15. Appleboy 15

    Wayne…Barry Soper is a left wing commentator? What planet are you on…Planet key obviously

    • felix 15.1

      Anyone who has ever questioned the god-ordained supremacy and glory of the golden child Key is teh communist.

  16. Graeme 16

    Geoff Bertram is a Senior Associate at the Institute for Governance and Policy Studies at Victoria University. Yesterday he published an article that makes Key look like the Meryl Lynch snake oil salesman setting up mum and dad first time investors for a fall. One wonders if Heffernan’s comment were made under instruction, and scripted by the Key spin machine. here is some of what Bertram’s article –

    A year ago, appearing before the Select Committee considering the Mixed Ownership Bill, I warned that the regulatory risk overhanging the electricity industry had become severe, and that it would be unwise to proceed with any partial share floats without first ensuring that investors could be confident of a stable policy and regulatory environment.

    Specifically, I pointed out that “New Zealand’s regulatory regime to date has been spectacularly lax by the normal standards of regulation in other countries, and any investor taking up shares in the pending floats of electricity SOEs will have to bear in mind the likelihood of a future policy shift that will more effectively remedy the obvious failings of the industry to date.”

    I drew the committee’s attention to more than $10 billion of asset revaluations that the generator/retailers had credited to their books.

    That sum, which had risen to $12 billion by 2012, represents the present value of the amount by which those companies’ profits are above what would have been needed to give them a fair return on all the money they have paid out, both to acquire their generation assets back in the late 1990s, and to install new assets since then.

    [lprent: Helps if you leave a link. I also seperated out what was quoted using blockquotes. ]

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