Some of NZ’s biggest power companies are being accused of making “lofty profits” at the same time as they have notified consumers of higher prices. Consumer NZ said customers of Genesis and Contact Energy will see their gas bills increase by an average of about 11%. Contact Energy’s electricity customers will see their bills increase by about 8% from November too. Genesis is planning to increase its electricity prices for residential customers in January 2023.
The combined profits of Genesis, Meridian and Mercury (to the end of June 2022) totalled $1.35 billion, which is more than double their combined profits from the previous year. These significant profits include gains from one-off sales and favourable forward electricity market movements. The dividends from these companies fatten the income of the government, which retains 51% ownership.
Another report, this one – co-authored by First Union, the Council of Trade Unions, and climate group 350 – says power companies have been paying out billions more in dividends than they’ve been making in profits, driving up electricity prices.
The union researchers call for the payouts to be channelled into building renewable generating capacity.
The paper also recommends a windfall tax.
From 2014 to 2021, Contact, Genesis, Mercury and Meridian paid shareholders $8.7 billion in dividends, the report said. That’s despite recording a total profit of just $5.35bn over that period.
The consistent practice over eight years was “highly unusual” and “could be evidence of competition issues in the electricity sector”, the report said.
“Excess dividend distribution has starved our electricity network of the investment needed to build new generating capacity, hiking prices on households in the midst of a cost of living crisis, and keeping coal and gas-powered generating assets on life support,” said First Union researcher and policy analyst Edward Miller.
Here Point of Order thinks it is worth noting NZ’s source of electricity is close to 90% from renewables, though the nation’s energy usage is only 40% produced by renewables. And of course some of those profits earned by Genesis last year came from coal-fired generation, with coal imported from Indonesia.
Is there some kind of irony to be found here?
It is argued that smaller retailers offer lower prices. But these outfits do not have to make the hefty investments in new generation to meet growing demand, nor the consequences of switching from fossil-fuelled generation to solar and wind.
Indeed the irony within those “lofty profits” is that they in part stemmed from fossil-fuelled generation of electricity as the production from renewables fell because of dry conditions in the main catchments.
Australian consumers are facing 50% increases in energy costs over the next two years, according to the recent Federal budget, while UK consumers are entering their own winter of discontent with soaring energy costs.
In NZ, too, another problem is the declining production of natural gas. Again there is a political factor in the equation. The Ardern government drove away oil exploration companies when early in its period in office it said it would issue no more permits for offshore exploration—a decision which the National Party now says it would reverse if it wins office next year.
Oil and gas production has been a major factor in the Taranaki regional economy ever since the Muldoon government decided to harness the Maui field in the 1970’s.
NZ’s largest oil and gas operator, OMV, has said it will reduce fossil fuel production by 20% by 2030 and completely cease production for energy use by 2050 as part of its new global strategy.
Austrian-based OMV and Jadestone Energy recently terminated a deal for Singapore-headquartered Jadestone to acquire 69% of the Maari field off the coast of Taranaki.
The $50m transfer of the asset was agreed in 2019, but has been caught up in regulatory changes designed to make sure companies can manage oil and gas wells through to decommissioning.
OMV says as part of its new global strategy, it is focused on low carbon business opportunities and will gradually decrease its oil and gas production.
“OMV are committed to continuing to operate the Maari field safely until the eventual decommissioning of the asset … and will be assessing what the long term future of the asset looks like.”
Despite the global positioning, the picture looked more rosy for Pohokura and Māui.
“OMV continues to operate the Māui and Pohokura gas fields and is significantly investing in re-developing these fields,” the company says.
That at least is reassuring.
Point of Order 