Published in Insights, The New Zealand Initiative’s newsletter, 26 April 2013
The economics of the opposition’s plan to introduce a single-buyer model for wholesale electricity is highly dubious, as I explain in my column in The National Business Review today. But that’s not the only questionable thing about it.
A day after the Labour/Greens’ bombshell announcement on energy policy last week, Greens co-leader Dr Russell Norman delivered another ‘argument’ in favour of nationalising the electricity sector: executive pay.
Releasing figures for executive remuneration and payments to the boards of energy companies, Dr Norman told The Sunday Star Times, “I think most New Zealanders would be shocked that the reason their power bills are going so high is not just the super profits to the companies, but also the super salaries that are going to their senior management.”
Dr Norman’s claim is both correct and irrelevant. It is correct because all salaries paid by companies must come from the revenue they generate. It cannot be any other way, so well done to the Greens for spotting an absolute truism.
But Dr Norman’s point about executive pay is also irrelevant in the discussion on electricity sector reforms.
The purpose of energy policy is not to determine executive salaries. It is about ensuring the market delivers a secure supply of electricity. That capacity is added to the grid whenever needed. That there are dynamic incentives for investment in new power plants. That competition prevails between generators and distributors. Ultimately, it is about consumers having reliable access to electricity at a good price.
What energy policy is not about is setting salaries of energy executives. Whether salaries for executives are too high or not, in the energy sector or elsewhere, is not a matter for politicians to decide but for the company’s owners (although these categories overlap for state-owned enterprises).
Besides, even if the Greens slashed to zero CEO and board payments for Contact Energy, Mighty River Power, Genesis, Transpower, and Meridian Energy, households would still save only about 11 cents a week. Whoop dee doo!
To link the debate about the best market structure for the electricity sector to the question of executive pay makes one wonder how sincere the Greens really are about their proposals. Are they driven by the wish to develop and discuss good economic policy? Or is it only about scoring political points?
It would be so much easier to take the Greens’ energy policy more seriously sans populist gimmicks.