A State-owned Electricity Network Is Possible
‘There is no alternative’ has been cancelled.
This week the government began injecting $12.1 billion (4% of GDP) into the economy, subsidising wages, increasing benefits and health spending, while doubling the winter energy payment. The Reserve Bank smashed the OCR down 75 basis points and began open market operations. A $900 million line of credit has been made available to keep Air NZ afloat, and if the situation continues to deteriorate - which seems pretty likely – this could be swapped for equity.
Government intervention in the economy is back, and even hard right ideologues are supporting it.
Air New Zealand was last nationalised in October 2001, just over a decade after its sale to Brierley Investment, having purchased Rupert Murdoch’s half of Ansett at an overvalued $680 million ($1.03 billion in today’s money), an airline with an ageing fleet in need of a substantial capital injection. With Air NZ’s financial position deteriorating, the Government stepped in, buying 80% of the carrier for $885 million ($1.285 billion in today’s money).
In 2013 the Key Government implemented a wave of partial privatisations, selling 49% shares of Air New Zealand along with four major power companies – Genesis, Mighty River Power (now Mercury), Solid Energy (Solid Energy - the former NZ Coalcorp - was put into voluntary administration in 2015 due to a combination of poor management and falling demand for coal in NZ) and Meridian.
This was part of a long-term project of corporatisation and privatisation of the national electricity network that came at a significant price for residential consumers. According to economist Geoff Bertram, between the beginning of the corporatisation and privatisation of the electricity sector in 1986 to 2015, the price of electricity to residential consumers doubled in real terms.
Industrial and commercial users, on the other hand, even saw a small decrease in costs over the same period. Residential consumers now pay ~40% more than industrial and commercial users, and ~80% more than heavy industrial consumers. Workers have been subsidising their bosses’ power costs.
Today four companies account for three quarters of our electricity market: Genesis, Contact, Mercury and Meridian. Three of these were privatised in 2013, while Contact Energy was the result of a previous privatisation in 1999.
Since 2013 these four companies have generated more than $5 billion in profits for their shareholders. While the NZ Government retains a 51% share in these companies, a quick perusal of their annual reports shows that the vast majority of shares are managed by ‘mum and dad investors’ - like HSBC, Citibank, JP Morgan and BNP Paribas.
The largest increase in their collective profits was between 2018 and 2019, a $340 million increase in profit (58%), with struggling Genesis seeing an almost tripling in profit. The winter energy payment that was implemented in June 2018 was costed at $374 million. This begs the question of the extent to which taxpayers have subsidised shareholder profits.
I strongly support steps to support those eligible for the winter energy payment during the covid-induced economic downturn. However, this means that we will now be paying around three quarters of a billion dollars to sustain these four power companies over the next year, and possibly longer.
Share prices for all of these companies have declined by around 25% already, and if further movement restrictions are imposed then commercial and industrial energy demand will likely dip further. I am currently writing from Kuala Lumpur, where all businesses except supermarkets are closed and energy consumption is collapsing.
Now is the time for the Government to act in support of the national interest. Power companies are strategically-important assets, and as New Zealand faces a critical economic downturn and wide unemployment, it’s important to be able to mobilise resources in such a way that supports workers and their communities.
A state-owned electricity network is possible, and is a crucial part of future-proofing our economy while protecting the dignity of our communities.
Edward Miller is a New Zealand Trade Unionist living in Kuala Lumpur