Transpower result highlights disquiet over sector profits

Sunday, 2 September 2018, 9:06 pm
Article: NZ Energy and Environment Business Week

First published in Energy and Environment on August 29

Transpower’s annual results for 2017/18 again highlight how much the Government is one of the main beneficiaries from profits in the electricity sector. The results show a net profit of $206 million and a dividend to the Government of $165 million.

The result comes as the Electricity Review looks at what is behind power bills after the Government cited rising electricity costs to consumers over the last decade as an issue which must be addressed.

The Transpower result will give fuel to the argument of those who feel it is the Government’s coffers which are one of the greatest beneficiaries of profits in the sector. The dividend payment represents more than 15% of the state owned enterprise’s gross revenue of $1,084 million.

There are strong public policy arguments for SOEs to earn a return on capital to ensure discipline and wise use of state owned assets, but some may argue the dividend payments from a monopoly (even a highly regulated one) may be a contribution to rising power bills.

Last week Energy and Environment reported there was disquiet from some parts of the electricity sector over the returns being earned by the gentailers and in particular the state owned ones.

A study of the partially privatised gentailers by consultancy firm TDB showed by most measures the Government was getting more in dividends from its 51% holding in the three major power companies than when it owned the SOEs outright.

TDB estimated the total annual shareholder returns for the companies since they began trading on the NZX was 26% for Meridian, 22% for Genesis and 12% for Mercury. This compared to the 7% returned by privately owned Contact and Trustpower.

There is a major rider to the headline findings of the study –the returns of the SOEs was not totally driven by performance, but a reflection their float value was below the true valuation.

While the report argues the case for success of the model, critics of the gentailers say it shows to those the Electricity Review where the profits are being made. The gentailers in turn point the finger at network providers saying they have been the main driver in power bill increases in recent years.

Today (Wednesday) Genesis Energy reported an 8% increase in full-year operating earnings after increased demand for Huntly’s coal-and gas-fired generation. Earnings before interest, tax, depreciation, amortisation and changes in financial instruments rose to $360.5 million, from $332.5 million a year before. The Genesis board declared a final dividend of 8.6 cents per share, an increase of 2%, despite net profit falling to $19.8 million, down 83% from $118.7m the year before. This was due to higher depreciation and revaluations.

Transpower’s annual result shows revenue was up 2% on the previous year. Operating expenses were $293.9 million, 2% higher than the $287.8 million incurred in the previous year. EBITDAIF was $790.5 million, an increase of 2% on the previous year’s $773.3 million.

Net profit after tax, before net changes in the fair value of financial instruments, was $206.5 million, a decrease of $1.9 million (1%) from 2016/17.

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