We should have kept the power company shares

Written By: - Date published: 8:19 am, August 9th, 2024 - 29 comments
Categories: Abuse of power, capitalism, Economy, energy, national, nz first, Politics, Privatisation, Shane Jones, winston peters - Tags:

One of my least favourite Ministers, Shane Jones, went onto radio yesterday and pledged a solution to high power prices.

Consistent with his behaviour to date he thought that opening his mouth and saying a few words would solve things.

There is a problem.

He does not know what he is talking about.

Jawboning the power companies will not be enough.

Because the problems with the electricity market can be related back to two historical events, the establishment of the electricity market by Max Bradford in 1997 and the sell off of power company shares by the John Key National Government.

Bradford’s reforms, which changed the structure of the power sector and allowed power companies to set the price of electricity to that of the most expensive source, has resulted in power companies concentrating on rorting the market rather than delivering new, cheap sources of renewable energy. The reform has been described as “based on inadequate research, rejected key advice, and was logically flawed” and with the benefit of hindsight this is exceedingly clear.

And privatisation meant that the power companies concentrated on the maximisation of payments of dividends, starving themselves of the capital needed to pay for new power generation capacity. It also has cost the country much more than it received. My calculation was that in 2019 it had cost NZ Inc $2.3 billion net. The figure now would be much worse.

This was all covered in detail by the CTU and other organisations in their report Generating Scarcity released two years ago. The report contained these conclusions:

  • From 2014 until 2021, the four big generator-retailer firms (the gentailers) have distributed $8.7 billion in dividends off only $5.35 billion earned in profits. Collectively, the gentailers have delivered $3.7 billion in excess dividends to shareholders over this period, averaging $459 million a year.
  • The NZ Government is a major beneficiary of this, collecting $1.35 billion in excess dividends as part of the $3.75 billion collected from its 51 percent shareholding over this period. This is an average of $150 million per year.
  • Systemic underinvestment in generating capacity has enabled excess dividend distribution, leaving New Zealand’s generating capacity practically flatover the last decade.
  • Underinvestment in renewable generation enables high-cost high-emission fossil fuel electricity to set the prices for cheaper renewable electricity, dragging prices up across the market and bolstering profits.
  • Excess dividend distribution’s impact is offset by a process of asset revaluations, itself the result of rising electricity prices. Asset revaluations now account for 56 percent of the value of fixed assets held by the three mixed ownership gentailers ($10.9 billion out of $19.6 billion)

This has more than hints of what happened with Enron in the United States. When power companies focus more on financial tricks than actually generating power things can get pretty weird.

Labour previously proposed to have one purchaser of power from the companies and for regulatory power to set the price. This would be a start although the failure of the power companies to invest in new generating capacity is a scandal of itself.

And not that long ago Winston Peters pledged to buy the power company shares back. I wonder what happened there?

As I said previously because of climate change I would prefer that the electricity generators are less profitable and more sustainable. The mixed ownership model is obsessed with financial return and does not care about extraneous matters like survival of the human race.

Expect a lot of noise from the Government about this issue. And very little action.

29 comments on “We should have kept the power company shares ”

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  1. Sanctuary 1
    9 August 2024 at 9:05 am

    We'd solve all our power issues if only we could figure out how to harness the emissions of that pompous windbag Shane Jones.

    The oleaginous Mercury energy PR flack was completely unrepentant on RNZ this morning, trotting out all the tired old cliches and obfuscations in defence of their price gouging and lack of investment which should tell us they'll pay five minutes attention to Shane Jones bombastic verbiage, and four minutes of that will be laughing. If you want to know what will happen to your water bill if that is sold off, just consider the rent seeking gentailers!

    The only solution is re-nationalisation of the electricity sector, which no one is currently proposing to do so we'll stagger along in broken NZ, home of the rent seeking cartel from banks to energy to supermarkets to DIY etc etc etc etc.

    • Ad 1.1
      9 August 2024 at 11:12 am

      Mercury has built multiple wind farms at scale in the last 4 years, including Turitea which is our biggest.

      I'll generate a post on Solar Zero and distributed energy feeds in a week or so.

      The Pioneer solar out of Taupo and the other one near Kaitaia aren't small for NZ.

    • Joe 1.2
      9 August 2024 at 5:10 pm

      Exactly, this is the way.

    • mikesh 1.3
      9 August 2024 at 8:58 pm

      Or make them subject to reguation by government.

  2. Joe 2
    9 August 2024 at 9:32 am

    I believe all of these arguments were made at the time, yet here we are. The issue is we have 2 opposed ideologies attempting to appear similar to get elected, all the whilehiding their true agendas. NZ needs to take things like electricity, transport, health, and education out of the hands of politicians and have boards staffed by experts, informed by best practices. What we do have is corruption, blatant in-your-face corruption masquerading as ideology. It is not acceptable for ANY government to be passing laws on "feels" and somehow we need to institute a mechanism to rein in the Costellos, Jones and other piggies elbowing each other at the trough.

  3. Tiger Mountain 3
    9 August 2024 at 9:35 am

    The artificial power market created by National–bludging on hydro power built by previous generations and taxpayers–was always mere free market exploitation, based around price gouging. The gentailers have very little new infrastructure to show for all those years or even keeping up adequate maintenance.

    And let’s not forget Rio Tinto and that accursed polluting smelter–using a huge amount of power at bargain basement prices and sending the profits offshore. They should be sent packing and the power allocated to the national grid.

    Power generation and lines supply needs to be returned to full public ownership asap–without compensation if the retailers do not go quietly. Has anyone noticed that Masturbation Jones is only advocating for corporates and business, what about people that cannot afford to turn the heaters on and wrap up in blankets and hot water bottles? Fossil Gas, new supplies of which the Govt seems to be fast tracking, is not the answer! The CoC vandals really do have a fundamentalist screw loose, Natzo politicians it seems were no more exempt from online craziness than others in the population.

    An example of how disfunctional power systems have become, in the Far North we have a geo thermal power plant–Ngawha Springs–that generates enough to power the region…but, due to lines infrastructure configuration Ngawha power goes into the national grid instead.
    So when the recent “Pylon Power Cut” occurred, essentially severing national grid connection, Tai Tokerau could not access the power it had generated and the cost was many millions which is unlikely to ever be compensated for.

  4. Ad 4
    9 August 2024 at 11:19 am

    +1000

    Failure is close-to inevitable in the short term ie this year, and a whole lot more destabilising to NZ than the ferry debacle.

    Minister Brown could continue the work of the previous government to form a proper regulatory framework for offshore wind farms. That would assist our big NZSuper proposal.

    • Graeme 4.1
      9 August 2024 at 5:33 pm

      Failure is close-to inevitable in the short term ie this year, and a whole lot more destabilising to NZ than the ferry debacle

      I'm stunned how quickly consequences has crashed the party for National. They were very quick at killing the NZ Battery project, which was about the current situation of a dry year and low storage. If Labour had still been government, Onslow would have been all go, and fast.

      Hopefully there will be a rethink on Onslow, along with action on offshore wind, and lots of it.

      Although just waiting for Jones to say coal fired thermal is the solution…

  5. adam 5
    9 August 2024 at 12:06 pm

    So 40 of financialization has led us to this.

    And the solution from the Mammonites in power – doubled down on the ideology, which caused the problem in the first place.

    Yeah right…

    • bwaghorn 5.1
      9 August 2024 at 12:34 pm

      The problem is Adam anyone under 60 has spent there whole life watching or quality of life and services available in this country decline and we've kinda just got to the that's the way it is stage, of acceptance.

  6. gsays 6
    9 August 2024 at 12:28 pm

    I am curious as to why we don't have more geothermal energy being built, particularly in the North Island.

    I heard an interview on RNZ recently with a scientist who was of the opinion we are world leaders of this.

    I understand we are info sharing with other nations and the exciting prospects are for going deeper and using steam @ 400°C.

    I have had a brief look but can't find a link on my fone.

    Wind turbines are incredibly energy dense, mind boggling amounts of concrete buried in the Earth to hold up the towers.

    Add to that, moving parts in essentially a marine environment.

    Anton Oliver was on to something when he opposed the Hayes wind farm back in the mid 2000s.

    He reckoned they were only viable because of the accounting trickery which Mickey alludes to that the power companies are doing now.

    • satty 6.1
      9 August 2024 at 12:48 pm

      Geothermal does emit some greenhouse gases. There are improvements in capturing those emissions… more information here:

      https://www.geothermal-energy.org/pdf/IGAstandard/NZGW/2020/044.pdf

      See Table 2 in document above for lifecycle emissions of different energy types in NZ.

    • Obtrectator 6.2
      9 August 2024 at 1:47 pm

      Just wondering: what are the chances of geothermal infrastructure sustaining damage in an earthquake? Wairakei's been going a good while now – how many such "episodes" has it been forced to deal with?

      • lprent 6.2.1
        9 August 2024 at 5:42 pm

        Just wondering: what are the chances of geothermal infrastructure sustaining damage in an earthquake?

        It isn’t as bad as you’re expect. You’re likely to lose some bores in the event of something large and close. But that happens all of the time anyway from various buildups. That is why there are a lot of bores and a almost continuous boring program.

        The power generating plant in NZ are usually not on the top of hills and don’t generally have slip problems (this report was fun to read).

        Generating facilities are built for earthquakes because shallow geothermal are always located in earthquake zones. Plus the use of geothermal can cause small tremors themselves and also subsidence.

        Typically they don’t have single points of catastrophic (ie explosive) failure because they aren’t particularly high temperature or high pressure compared to most thermal sourced electricity. That means that they aren’t subjected to anything like the stresses that a thermal power station has. And everything from the pipes, condensors, separators to the pumps to the turbines are smaller and more distributed. These days computers do most of the monitoring and shutdowns fast.

        What I’d be worried about aren’t earthquakes. It would be the really big eruptions, like Taupo Hatepe level. But if those happened, the electrical power would probably be the least of our problems.

        I had a good look around plants in the early 1980s as part of my degree, and studied some stuff on the newer binary plants later.

        Umm… https://en.wikipedia.org/wiki/Geothermal_power

    • joe90 6.3
      9 August 2024 at 2:03 pm

      mind boggling amounts of concrete buried in the Earth to hold up the towers.

      When compared to thermal.

      https://www.researchgate.net/figure/The-amount-of-raw-material-per-megawatt-t-MW-required-for-a-range-of-energy-production_fig1_322054349

    • Ad 6.4
      9 August 2024 at 2:55 pm
      • Better 21st c understanding of seismic risk and proximity
      • Local geothermal expertise declined in 1980s and never returned
      • Iwi resistance
      • Failure to properly renew existing geo plant, as per Mickeys post
      • Better understanding of sensitivity of fields to draw
      • V hard to consent new fields
      • Wind was easier

      In short too hard, no money, no capacity, no will.

      • gsays 6.4.1
        9 August 2024 at 3:32 pm

        "In short too hard, no money, no capacity, no will."

        Sounds like 21st century Aotearoa.

      • lprent 6.4.2
        9 August 2024 at 6:08 pm

        Ad: Urrghh. Bad HTML

        There was a </ul> in the wrong place after the first bullet point, and everything else was <li></li>. It broke the rest of the page.

        I will have to investigate how to prevent that from happening. Pretty sure that it was meant to be blocked.

    • Gareth 6.5
      9 August 2024 at 3:58 pm

      There is a new geothermal power station being built right now, about 2 ks from my house east of Rotorua.

  7. Jack 7
    9 August 2024 at 1:42 pm

    If I remember correctly Key's Cats wanted to sell off 100%, if given their own way.

  8. SPC 8
    9 August 2024 at 5:06 pm

    It was known then that the cost of new power was higher than historic hydro, thus holding onto ownership would mean CG.

    But the then government decided to enable those with spare money to make the CG rather than government – leading to less well resourced government in the future. As a deliberate policy indicative of a purpose inimical to those outside of a class seeking more resources to itself.

    In the current matter, it was decided earlier to use price to ration demand at peak periods – business users.

    The intelligent ones would

    1. seek lower price contracts in return for reducing demand at peak demand or low hydro supply years.

    2. have plans for reducing production during times when power cost made this uneconomic

    Yet instead we hear no reference to Comalco at all (and no one copying their practice to reduce power cost) and instead of a temporary reduction in production for one period in one year in 5 etc, assertions they will have to close down permanently if government does not reduce/subsidise market prices when they get high.

    Second world status and still declining has to have a cause. Here it is class and entitlement.

  9. Mike the Lefty 9
    10 August 2024 at 8:57 am

    The political right have always thought they could make things happen by talk.

    I remember when, in the fourth Labour government, The Rogernome declared that the trick to defying inflation and bringing the exchange rate of the dollar down was "to talk it down".

    Just what a dismal failure that was is there in history.

    You actually have to do things, not just talk political slogans and threats. This CoC is good at threatening people that have little power such as the unemployed and foreign workers, but don't have the balls to take on the mega profit makers such as the banks and power companies.

    • roblogic 9.1
      10 August 2024 at 3:39 pm

      Everything in our "free market" – except our precious public sector – is controlled by a cosy cartel taking excess profits.

      Banks, Electricity, Petrol, Supermarkets, Transport, Housing

      Any actual "left wing" government that tries to mitigate this situation on behalf of Kiwi workers and consumers, is quickly deposed by the oligarchy.

    • Belladonna 9.2
      10 August 2024 at 4:22 pm

      Am pretty sure the 4th Labour Government did a lot – it transformed the NZ social and economic landscape – a lot more than talk and slogans.

      Indeed, the angst expressed on TS is all around the action that the current government is taking (in a range of areas: both legislative and administrative) – and the speed of the action, without allowing for debate. Areas like the fast-tracking of consents, changes of curriculum, dismissing the Health NZ board and appointing a commissioner. It's the actions that are being disapproved of.

      • roblogic 9.2.1
        10 August 2024 at 8:17 pm

        Because unlike past governments, Luxon's "to-do" list is not based on policy, or building anything, or a vision for the future. It's all about cancelling and wrecking everything Labour did, unwinding Māori rights and trying to burn Te Tiriti, talking a lot of shit while him and his landlord mates fill their pockets and avoid paying their fair share.

        • Belladonna 9.2.1.1
          11 August 2024 at 8:47 am

          You appear to be agreeing with me, that the OP comment "political right have always thought they could make things happen by talk" – is thoroughly wrong in the current context.

  10. DS 10
    13 August 2024 at 10:50 pm

    To point out the obvious: Labour had six years, three as a majority government, to buy back the shares – ideally at the price they were sold for. They did nothing.

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