web analytics

The smartest guys in the room

Written By: - Date published: 7:08 am, December 24th, 2022 - 9 comments
Categories: Abuse of power, business, Economy, energy, sustainability - Tags:

Readers may remember Enron, the large US corporation that claimed revenues of nearly $101 billion during 2000 and which was described by Fortune Magazine as “America’s Most Innovative Company” for six consecutive years.

It all ended in tears.  Reporters dug behind the glossy surface and concluded that it was essentially a pack of cards and that huge amounts of wealth were generated by shoddy accounting practices.  An intrepid reporter analysed the cash flow and worked out that its market value was hopelessly overstated.

At this time directors knew they were in control of a lemon and were secretly offloading their shares as they were publicly pushing people to keep buying.  Senior figures went to jail.  Lots of people lost money.

One particularly disturbing aspect of its behaviour was its contribution to rolling power outages in California.  Enron traders were revealed as intentionally encouraging the removal of power from the market by persuading suppliers to shut down plants to perform unnecessary maintenance.  That way price levels spiked and large profits were booked.

There is a really interesting documentary about the episode called “Enron: the smartest guys in the room” which perfectly captures the testosterone sense of superiority displayed by Enron’s senior management.

Here is the trailer.

The film can be seen on Youtube.

What made me think about this is recent news about actions by Vector which has resulted in the Commerce Commission issuing a warning letter for likely contravention of various rules.

One News has the details:

Electricity giant Vector has backed down on moves the Commerce Commission say “would have cost its customers millions of dollars over the coming decades” after an investigation.

The Commission’s deputy chairperson Sue Begg said the investigation began two years ago.

A statement from the Commerce Commission today explained the issue.

“In March 2020, Vector entered into the transactions involving two of its wholly-owned subsidiaries, selling its CBD tunnel and a portfolio of substation land and building assets, then leasing those assets back from its subsidiary companies.

“In the Commission’s view, Vector’s approach to valuing those transactions was inconsistent with regulatory rules under the Commerce Act 1986,” the statement read.

The reason for Vector’s actions is captured in this paragraph from the Commerce Commissions’s statement:

This revaluation would have enabled the company to significantly increase charges to consumers, without providing any service improvements or infrastructure investment,” the statement read.

Pump up the value and then you can pump up the charges, even though the underlying asset and its cost has not changed.

This is not the first example of bad behaviour in the local energy market.  Meridian were accused of spilling water at the same time as increasing the spot market price for power in 2019.  Contact Energy were also said to be involved.

But it discloses a unfortunate habit.  Senior executives more interested in the accounting and legal side of the business than the thing that matters most, making sure that power is delivered as cheaply as possible and the infrastructure is up to scratch.

And as we head to an uncertain future and the desire for our power to be 100% renewable the market control over the energy sector has to be questioned.  As said by Molly Meluish at OurClimateDeclaration:

” … the extreme profit-driven governance of our electricity sector must be replaced with some system to confirm and promote the public interest in energy supply. (7) There are several options (8), all incompatible with neoliberal philosophy and finance.”

The timing is interesting.  It looked like the Commerce Commission and Vector were negotiating the terms of the letter and the release and managed to get it completed just before Christmas so the outrage would be dulled by the pre Christmas rush.

Well done to the Commerce Commission for identifying and highlighting this issue.  And shame on you Vector for trying to pull a swiftie.

9 comments on “The smartest guys in the room ”

  1. Ghostwhowalksnz 1

    I see the recent Victoria State election, in which the labour government returned with its 'outsize' majority intact despite noisy opposition from the anti lockdown/health brigade, one of the policy planks was to resurrect the state owned electricity supplier the SEC .

    As an interesting aside , they also want to insert a supermajority (60%) clause in the states constitution to prevent the easy selloff of the new SEC by a future government

    They had in 2018 used a similar clause for future 60% majority to rescind coal seam gas and fracking bans.

    Maybe we need a change to our 'Constitution Act' to allow for 60% supermajoritys separate to the 75% now needed for electoral type law changes

    Its only a number !

  2. Dean Reynolds 2

    The only solution is to renationalise power.

    • tc 2.1

      +100
      No significant new generation since muldoon’s hydro or retooling plan for the distributed new world. Dragging it’s heels on solar/wind, insufficient reinforcement/resilience the list goes on.

      A market failure if the objective is “making sure that power is delivered as cheaply as possible and the infrastructure is up to scratch…”.

    • Thinker 2.2

      Or regulate it.

      The issue in any decision is “is this an essential public necessity or a commodity to be traded?”

      One should be delivered at cost-plus, the other delivered at what the market will pay.

      The problem is Rogernomics and Ruthenasia mixed things up and proclaimed public utitilies as to be traded as if they were commodities.

  3. PsyclingLeft.Always 3

    Mickey Savage, Good Post. Would..or could we ever trust a NZ profit driven Power company? IMO : no.

    The examples you list (incl spilling water) are just some of their many dodgy dealings (akin to used care sales)

    And there was recently this ..

    A controversial data centre proposed for the foot of the Clyde Dam has been granted resource consent, opening the door for cryptocurrency mining in Central Otago.

    New Zealand was attractive due to its high proportion of renewable electricity generation.

    He explained Lake Parime was entering into a commercial relationship with Contact Energy for the supply of up to 10MW of electricity.

    https://www.odt.co.nz/regions/central-otago/clyde-data-centre-gains-consent

    The uses of a data centre are varied, Prof Eyers says.

    "The potential use of data centres to ‘mine cryptocurrency’ involves computers burning through power in a race to solve computational puzzles that themselves have no inherent value.

    "Winning such a race bestows the right to add a block of transaction records into proof-of-work blockchain ledgers such as for bitcoin."

    He says proof-of-work was designed paying no attention to its environmental effects.

    "My view is that promoting use of proof-of-work is environmentally irresponsible at a time when the planet collectively has more important uses for energy, renewable or not."

    https://www.odt.co.nz/regions/southland/who-behind-data-centres-south

    To use OUR Renewable Power for something as "worthless" as cryptocurrency …is a travesty.

    • Ghostwhowalksnz 3.1

      Electrons in AC grid dont travel like cars down a highway as some imagine.

      Having a data centre at the 'foot of a hydro dam' isnt any different to having it ( more likely) in Dunedin.

      in a simplified terms think of it like dominoes all lined up , when the first falls the rest then fall very quickly but the first dominoe stays where it is. Thats a good analogy for how electric charge moves near to the speed of light around the grid .

      • PsyclingLeft.Always 3.1.1

        Well….maybe address Mr Brinsdon?

        Contact Energy head of hydro generation Boyd Brinsdon said in evidence the reason the site was selected was because it was next to the Clyde power station reducing transmission and distribution losses.

        https://www.odt.co.nz/regions/central-otago/clyde-data-centre-gains-consent

        But anyway..that was … one… part of my msg and links. Ok?

        • Ghostwhowalksnz 3.1.1.1

          More important the data is close to users – which does 'move like cars down the road and do have congestion' -which is why there will be many new centres around Auckland. They are more likely to want continuous supply rather than a tiny amount of line losses

          often replies can be for more general readers…Ok

  4. millsy 4

    LOL. Vector's network isnt exactly gold plated. Ask any Aucklander when a storm comes.

Recent Comments

Recent Posts

  • General Election to be held on 14 October 2023
    The 2023 General Election will be held on Saturday 14 October 2023, Prime Minister Jacinda Ardern announced today. “Announcing the election date early in the year provides New Zealanders with certainty and has become the practice of this Government and the previous one, and I believe is best practice,” Jacinda ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Prime Minister Jacinda Ardern announces resignation
    Jacinda Ardern has announced she will step down as Prime Minister and Leader of the Labour Party. Her resignation will take effect on the appointment of a new Prime Minister. A caucus vote to elect a new Party Leader will occur in 3 days’ time on Sunday the 22nd of ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Trade and Agriculture Minister to attend World Economic Forum and Global Forum for Food and Agricult...
    The Government is maintaining its strong trade focus in 2023 with Trade and Agriculture Minister Damien O’Connor visiting Europe this week to discuss the role of agricultural trade in climate change and food security, WTO reform and New Zealand agricultural innovation. Damien O’Connor will travel tomorrow to Switzerland to attend the ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Government funding relief for flood-affected Wairarapa farmers and growers
    The Government has extended its medium-scale classification of Cyclone Hale to the Wairarapa after assessing storm damage to the eastern coastline of the region. “We’re making up to $80,000 available to the East Coast Rural Support Trust to help farmers and growers recover from the significant damage in the region,” ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Government provides support to flooded Tairāwhiti communities
    The Government is making an initial contribution of $150,000 to the Mayoral Relief Fund to help communities in Tairāwhiti following ex-Tropical Cyclone Hale, Minister for Emergency Management Kieran McAnulty announced. “While Cyclone Hale has caused widespread heavy rain, flooding and high winds across many parts of the North Island, Tairāwhiti ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Government support for flood-affected Gisborne Tairāwhiti farmers and growers
    Rural Communities Minister Damien O’Connor has classified this week’s Cyclone Hale that caused significant flood damage across the Tairāwhiti/Gisborne District as a medium-scale adverse event, unlocking Government support for farmers and growers. “We’re making up to $100,000 available to help coordinate efforts as farmers and growers recover from the heavy ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Monkeypox vaccination available to eligible people from next week 
    A vaccine for people at risk of mpox (Monkeypox) will be available if prescribed by a medical practitioner to people who meet eligibility criteria from Monday 16 January, says Associate Minister of Health Dr Ayesha Verrall.   5,000 vials of the vaccine have been obtained, enough for up to 20,000 ...
    BeehiveBy beehive.govt.nz
    2 weeks ago