Big power companies tipped to increase operating profits by 22%

Thursday, 9 February 2023

Forsyth Barr says Genesis and Mercury are headed for “record half year results”.

The country’s big four power companies are likely to post a 22% increase in their combined operating profits when they report their interim results over the next three weeks, an analyst says.

Forsyth Barr is forecasting Meridian, Genesis, Mercury and Contact Energy will have increased their operating profit during the first half of their financial years to just under $1.41 billion, up from just under $1.15b in the same period a year ago.

It is also predicting all but Contact will increase their dividend pay-outs to shareholders when they release their results.

That is despite the Council of Trade Unions last year accusing the big power companies of starving the electricity network of investment and engaging in “asset-stripping” by taking on debt and paying out billions more in dividends than they earned in profits between 2014 and 2021.

Meridian Energy said at the time it disagreed with the union-backed report.

Consumer Advocacy Council chairperson Deborah Hart says something needs to be done about electricity (video first published in November).

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Forsyth Barr is forecasting the big four power companies will report a significant drop in their combined net profit for the half year.

But based on its estimates that would be due to Mercury Energy posting a $367m gain on the sale of its stake in Australian wind farm business, Tilt Renewables, in the previous corresponding period.

The four companies more than doubled their combined net profit to $1.35 billion in the year to the end of June.

Their operating profits, which provide a better guide to their underlying performance, increased during that period by 15% to $1.73b.

Forsyth Barr made clear in its new report that Genesis and Mercury were now having a day in the sun.

The reporting period would be “all about record North Island hydro generation powering both Genesis Energy and Mercury to record half year results”, it said.

Contact Energy was the only gentailer it “expected to go backwards”, and that was due to a record operating profit in the first half of its 2022 financial year and low wholesale electricity prices, it said.

Energy Minister Megan Woods declined to comment on whether the expected increase in operating profits and dividends was acceptable, or whether she believed the sector needed structural reform.

Energy Minister Megan Woods “won’t comment on forecasts”.

A spokesperson for Woods said she “won’t be commenting on forecasts”.

Deborah Hart, chairperson of the Consumer Advocacy Council, said consumers and small businesses would be unhappy to see the gentailers making large profits “when they are doing it tough during a cost of living crisis”.

The council was established by the Government to advance the interests of consumers and small businesses in the power market, and has signalled a willingness to question the status quo.

Power companies should be highly sensitive to consumers’ and businesses’ cost-of-living concerns and show restraint when it came to increasing electricity prices and increasing dividend payouts, Hart said.

“What consumers want to see is the electricity companies using their profits to undertake more investment in renewable generation because that is key to ensuring consumers have affordable, reliable and sustainable electricity in the future.”

Most consumers face a sizeable hike in their daily fixed charges for electricity from April 1, when the Government is set to allow power firms to raise the daily charge on “low user” power plans from 69 cents a day to $1.03 a day, including GST.

The Government allowed the charge to double to 69c last year, although in some cases that has only fed through into people’s power bills over the past couple of months, as customers have come off fixed-term plans.

The increases in the daily charges stem from a decision by Woods in 2021 to phase out the requirement for power companies to offer low-user tariffs, over a period of five years.

The Government’s expectation has been that would be offset by a corresponding reduction in power companies’ other charges.