Power company profits jump 60% as customers warned to prepare for 'hard year'

Monday, 28 February 2022

“We know this will be a hard year for consumers and for industry, coming on top of what is already a challenging time,” Electricity Authority market policy manager Andy Daube, says.

The country’s four biggest electricity companies increased their combined profits by nearly 60 per cent in the second half of last year, company filings show.

Their operating profits, which provide a better guide to their underlying performance, also increased though by the much lesser amount of 1.8 per cent.

The results have come out as a first wave of households face the effects of a government decision to phase out the requirement for power firms to offer low daily fixed charges to customers who use less than about 8000 kilowatt-hours (kWh) of power a year.

Some customers are facing substantial rises in their power bills from April, though the country’s largest power firm, Meridian, said the price changes it was making as a direct result of the tariff change were “broadly neutral” for the company.

Energy Minister Megan Woods reiterated that the continued phase-out of low-user tariffs would be subject to a review next year.

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Electricity Authority chairwoman Nicki Crauford and then chief executive James Stevenson-Wallace give evidence to a select committee on February 10.

Electricity Authority market policy manager Andy Doube predicted “a hard year for consumers and for industry”.

Niwa was forecasting La Nina weather conditions leading into winter, and hydro generators had advised they were “being cautious with their storage”, he said.

That caution has the effect of pushing up wholesale prices.

The Major Electricity Users Group warned in January that it was concerned industrial power users might be in for another year of high electricity prices and job losses, with wholesale prices rising then after a respite in spring.

The Electricity Authority is analysing whether wholesale prices during some periods in January were in keeping with its trading conduct provisions, but said it had not yet launched a formal investigation.

Big four generators Meridian, Contact, Mercury and Genesis reported a combined net profit of $779 million for the six months to the end of December, up from $487m during the same period in 2020.

The jump reflected a net gain of $367m by Mercury Energy from the sale of its 20 per cent share of Australian wind farm company Tilt Renewables, whose New Zealand arm it bought outright.

Excluding the impact of such one-off transactions, the four companies’ operating profits for the period rose to just under $1.17b, from just under $1.15b in the same period in 2020.

The latest power company to report is Genesis Energy, which on Monday posted a 63 per cent jump in its interim profit to $84.7m.

Chief executive Marc England described it as a strong result that Genesis had achieved while “building capability for the future”.

At the same time, Genesis increased its interim dividend to shareholders by 0.1 cent, to 8.7c per share.

Trustpower has a different reporting period to the other four large generators and is expected to release its result for the year to the end of March in May.

Nova Energy has been advising customers of new pricing.

Meridian last week began writing to 25,187 customers, advising them that their daily fixed charge will be doubling from 34.5 cents a day to 69c a day from April.

That is the first of five annual 34.5c/day hikes in the daily charge between April 2022 and April 2026 allowed by the government policy change, with other customers who are on low-usage tariffs expected to be impacted as they roll-off fixed-term contracts.

One letter notifying a Meridian customer of the price change also advised that customer that their daily energy charge – net of their network charge – would also be increasing marginally, from 18.4c/kWh to 18.52c/kWh.

Meridian’s interim profit was down 59 per cent, though its operating profit excluding one-offs was virtually unchanged at $394m.

Some customers of Nova Energy on low-user tariffs have received letters notifying them that both their fixed and variable charges are rising significantly from April.

One bill showed a Wellington customer’s fixed charge doubling from April and their variable charge also rising steeply from 21.8c/kWh to 27.26c/kWh, excluding gst, but including their network charge.

Woods said people who lived in larger households or had homes that used a lot of electricity to heat, had effectively been “subsidising” those on low fixed charges, which was why they were being phased out.

“Our expectation is that as the daily fixed charge gradually rises over the next five years, changes to variable rates will take this into account and be lower than they otherwise would be.”

This was the time of year that companies let their customers know about annual price changes and while changes to low fixed charges would have an impact on some households, higher wholesale prices for electricity would also be reflected in the variable rate, she said.

“I will be closely monitoring changes to pricing plans and will do a mid-point review of how the changes might be affecting low-income and low-use households next year.”

Speaking to analysts last week, Meridian chief executive Neal Barclay said weekly reporting that the Electricity Authority was now providing on trading conduct in the industry indicated wholesale pricing was reasonable.

Barclay said wholesale electricity prices reflected a “significant price premium” with regard to dry-year risk.

“I don’t believe this is any indication of an electricity market not working,” he said.