You would think in any country, the price of power would be based on the cost to produce it plus the cost of maintaining and extending the network.
But that’s certainly not the case, not in NZ anyway. The electricity companies make huge profits which they pay to the government of the day. Just read this from the Herald:
Profit rise for grid operator
By Brian Fallow
5:30 AM Saturday Aug 18, 2012
Transpower is to pay the Government a final dividend of $205 million, making $315 million for the full 2011/12 year.
The company, which owns and runs the national grid, yesterday reported a net profit after tax of $85 million, up from $79 million the year before.
Its preferred measure of net profit, which excludes the effects of marking to market financial instruments it has in place to manage exchange rate and interest rate risks, rose to $167 million from $126 million in 2010/11.
This year’s bumper dividend reflects a move to a more highly geared balance sheet.
Transpower raised an additional $1.1 billion in debt over the past year, mainly in the United States and Canada, lifting term debt to $2.4 billion, against total assets of $4.9 billion.
Going forward its dividend policy will be to pay out between 65 and 75 per cent of cashflow left after allowing for maintenance capital expenditure and subject to keeping free cashflow above 2.8 times interest costs.
In the latest year it spent $915 million in capex on major upgrades to the grid but the bulk of that work is now behind it and capex is expected to drop back to around $400 million a year from 2014/15.
As the major upgrades move into the regulated asset base on which it is allowed to earn a set return, Transpower’s transmission revenue is set to climb, from around $630 million this year to nearly $1 billion in three years.
But it says that will only increase its share of the typical householder’s power bill from around 8 per cent now to less than 10 per cent.
“The big build has happened,” chief executive Patrick Strange said. “We have put the extra capacity in.
“Going forward it is all about capex efficiency and making sure we don’t overbuild or underbuild.”
The next big challenge would be on the demand side, he said.
“The value to us is, when we have something go wrong, how much load can we shed in a hurry so we can hold the grid together?
“We have got a $12 million programme pushing the demand side in Auckland.
“I have quite great hopes for that and it will certainly help us push that $400 million [of projected annual capex] down towards $300 million.”
By Brian Fallow | Email Brian
Now I get annoyed by this for several reasons:
1) Why on earth is this company paying $315 million to the government each year? Why don’t they just not pay that and make our power prices cheaper?
2) Further to that, this company has only made a net profit of $85 million (or $167 million depending on which measure you use). So are they borrowing to pay a dividend to the government?
3) And at the same time they borrowed $1.1 billion. So they pay out $315 million to the government, but borrow $1.1 billion… Far out that just doesn’t make sense does it. Why not pay no dividend and borrow less for crying out loud?
4) And this will ‘only’ increase the share of the average punters power bill from 8 percent to 10 percent! Well mate, the whole friggin country is getting pretty sick and tired of constant electricity price increases. Electricity has been going up much faster than inflation for years now. Over 10 years I would imagine. And it looks set to continue.
Well I know exactly why companies such as Transpower, Meridian Energy, Genesis Power, Mighty River Power et al pay these huge dividends to the government, it’s because the government makes them. They’re cash cows for the government.
So their job is NOT to provide power at a competitive price, allowing for future upgrades, but to make as much profit as possible so they can pay a huge whack to the government each year.
If they each paid $300 million to the government annually, that’s $1.2 billion extra for the government to spend. $1.2 billion less they have to tax us. And of course it’s probably easier to collect it via higher electricity prices than to raise taxes.
After all, as a government minister, if you are asked about higher electricity prices, you can just sort of shrug your shoulders and say “Yes it’s annoying how they keep going up” – even though it’s your own policies making them rise. But if you have actually raised taxes, and you get cornered by the media about that, you have no one to shift the blame onto, no one to deflect the question onto, so it becomes and untenable position.
And just imagine if that $1.2 billion was not collected from New Zealanders, how much cheaper would our power be? How much would each household and each business save?
According to Statistics NZ, there are around 1.6 million households in NZ and around 470,000 businesses. So lets round that out at say 2 million and divide $1.2 billion by 2 million, we get $600. Now this is a pretty rough calculation, and takes no account of how much each house or business uses etc. but that’s a saving of $600 for each household or business on average.
So we can effectively think of this as an extra tax. We pay an extra $600 extra tax each year (and more if you own a business as well) via electricity. I wonder how many people realise this, or care?