Energy Minister downplays accusation power firms engaged in 'asset stripping'

Friday, 11 November 2022

Report says big electricity generators have ”spent the last decade generating scarcity, prioritising dividends over struggling households and the planet”.

Energy Minister Megan Woods is downplaying accusations big power firms have starved the electricity network of investment while hiking prices and paying out $3.7 billion in “excess dividends” to shareholders.

A report by the Council of Trade Unions, the First Union and climate action group Aotearoa 350 said Meridian, Mercury, Genesis and Contact Energy paid out $8.7b in dividends to shareholders between 2014 and 2021, saying that was more than the $5.4b they earned in profits over the period.

The former three companies had achieved that by increasing the book value of their assets by more than $10b to reflect “high and rising electricity prices” while taking on extra debt in a process that amounted to “asset-stripping”, it said.

The unions and Aotearoa 350 called on the Government to respond by ordering big power firms to reinvest a minimum proportion of their profits in new generation and by levying a windfall tax on excess pay-outs.

Woods said any suggestion that consumers were not being protected from unjustified price hikes was something she took “very seriously”.

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She did not immediately identify any inaccuracies in the report, but said it “lacked context”.

Household electricity prices had not risen significantly since 2014, she said.

The union-backed report said “what we are seeing here is asset-stripping that delivers disproportionate benefits to a privileged few at the cost of residential consumers and global warming”.

“It is doubly ironic that this is possible because of the investments made over decades by the taxpayer, yet it is the poorest New Zealanders who are paying the price in higher energy prices,” it said.

A study funded by power companies had set out a “bold vision” that would see them spend just over $10b on renewable generation by 2030 with the goal of ensuring 98% of power would be generated by renewables, the report said.

But what that had not mentioned was that they “appear to have also spent the last decade generating scarcity, prioritising dividends over struggling households and the planet”, it said.

The broadside came in the wake of indications that a lobby group set up by the Government to provide a “louder voice” for the interests of consumers and small businesses in the sector, the Consumer Advocacy Council, is poised to press ministers to restructure the industry.

Consumer Advocacy Council chairperson Deborah Hart said on Tuesday that power prices were high, consumers were cutting back on heating and hot water, and that something needed to be done.

2degrees has signalled it will campaign for Telecom-style reforms of the power industry next year after entering the market under its own brand, while Vector has called for a new ministry of energy.

Meridian said it disagreed with the union-backed report.

“We are a company of people who care for New Zealanders and we're working hard to deliver a clean energy future that is good for everyone,” it said in a statement.

The Electricity Retailers Association (Eranz), which represents the major power firms, has responded to recent criticisms of the industry by saying it did “really well on reliability, affordability and sustainability” compared with overseas.

It has also pointed out that the Electricity Authority, the industry’s regulator, recently concluded major structural reforms were not currently justified.

Eranz chief executive Bridget Abernethy said that over the past five years, the average household electricity bill, which is a function of the price of electricity and how much power people used, had increased 3.9%, or at a rate of 0.8% per year, which was below the rate of inflation.

The union-backed report said New Zealand was known for its relatively high proportion of renewable electricity generation.

But it said much of that rested on the “legacy of hydropower schemes” built between 1945 and 1970 by the state and that during the past decade, generating capacity had remained roughly the same at about 10,000 megawatts.

“Excess dividend distribution is the spoil of systemic under-investment in new generating assets, which keeps electricity prices high and existing gas and coal-generating facilities on life support,” it said.

The Government had been “a major beneficiary”, collecting $1.35b in its share of excess dividends from the gentailers between 2014 and 2021, and should reinvest that in community power projects, it said.

Council of Trade Unions chief economist Craig Renney said the Government had recently reacted to the banking sector and to petrol companies to ensure they were delivering better outcomes for New Zealanders.

“This report demonstrates that there is a pressing need to do this for the electricity sector as well,” he said.

“New Zealand now generates more electricity through coal and gas than we did in 2018.

“Prices for customers are rising but new renewable electricity generation that might tackle rising bills and our climate commitments has been missing in action.”

First Union policy analyst Edward Miller said private ownership of the electricity industry had “lost us almost a decade of possible progress in the fight for a just transition to a low-emissions economy”.

Woods noted that there were now several proposals for large investments in new renewable generation, including some solar energy projects that were under way.

With regard to its environmental criticisms, the report did not mention that 2020 was “a particularly high year in the use of coal for generation due to a dry hydrological year coinciding with problems in gas availability”, she said.