A couple of people have questioned this series of posts outing the financial interests of supposedly ‘independent’ commentators who are coming out against the Green/Labour plan to lower power prices. ‘Everyone has links to everyone in New Zealand’. Maybe so, but not everyone is paid by the people whose interests they’re protecting while pretending to be independent in the msm.
First NZ Capital added its opposition to NZ Power last week with a stunningly bad analysis claiming that, if you exclude lines charges, power is rising at ‘only’ 2.6% above inflation. The report was lapped up by RNZ and others.
That central claim (not backed by any data or even source) turns out to be wrong – if you exclude lines charges, retail prices have risen even faster in the past 15 years – which confirms that its wholesale prices that are the problem.
It also wouldn’t be OK if it were true – what justification can there be for increasing the price of power generated from free water on decades old dams that cost less and a cent a kilowatt hour to run at any rate, let alone twice the rate of general price increases?
Honestly, this piece of analysis was so crap that it literally asks ‘how can you work out the historic value of dams we built a hundred years ago, we don’t have the records?!’ as justification for charging the power from those dams as if they’re expensive thermal peaking plants.
So, what’s First NZ Capital’s game? Well, they’re one of the companies in charge of selling Mighty River.
As a ‘joint lead manager’, they get $666,666 guaranteed for doing, well, not a hell of a lot. They get up to a further $1,333,333 based on ‘performance’ – ie. how many people and institutions they can get to buy shares in Mighty River.
On top of that, they get a slice of 0.2% of the take from retail investors, 0.4% of the take from institutional investors, and 0.8% of the take from overseas institutional investors (yes, they make more for selling to foreigners than ‘mums and dads’). Assuming a 3rd/3rd/3rd division between those classes of buyers and the joint lead managers are getting a $5,000 slice of every million the government gets from the sale.
If the shares sell at the top of the government’s range, that’s a $9m kitty for the joint lead managers to divide up. Reduce the share offer price by, say, 70 cents as has been suggested and that pool shrinks by $2m.
So, it goes like this: First NZ Capital makes money for bringing in buyers for Mighty River both through the bonus it can get from Treasury and because the more interest there is, the more investor money going into buying Mighty River shares, the larger the slice for First NZ Capital and the other joint lead managers.
Clearly, First NZ Capital doesn’t want anyone being scared off buying Mighty River shares. Hence, its rubbish attack on NZ Power. Because anyone with two brain cells to rub together can see that a plan for cutting power prices by tackling the generators’ super-profits will lower the value of Mighty River. First NZ Capital has a multi-million dollar incentive to make people ignore or discount NZ Power by framing it as unworkable.
Actually, this post is somewhat misnamed. First NZ Capital doesn’t care if you ultimately end up continuing to pay too much for power or not. But it does care that plenty of ‘mum and dad’ investors believe that you will continue to pay too much for power. Because if it can convince them that you will, then they will buy into Mighty River, and First NZ Capital will make out like a bandit. If its shrill attack on NZ Power later turns out to be baseless and the ‘mums and dads’ lose their shirts when power prices are brought down, it won’t matter to First NZ Capital – it will have pocketed the millions and washed its hands long before then.