• Energy costs are rising, crippling our industries and hurting our people.
• Three out of the four largest electricity companies are majority state-owned.
• State-owned companies must act with national interest and a fair return to shareholders, not price-gouging quasi-monopolies.

Last August, electricity spot prices reached a record high of $900. Some companies paused operations and sent their staff home. Several paper and pulp factories, including Kinleith Mill and Winston Pulp, closed permanently, resulting in hundreds of job losses. Energy poverty is soaring. Every household in the country was hit with near double-digit price hikes in July, amid a cost-of-living crisis. While the country is suffering, the electricity companies are making record profits.

We, the taxpayers, own a majority share in most of these companies. But they operate like any profit-maximising quasi-monopoly. A key driver of our economy is being strangled.

Shouldn’t they and their shareholders be happy with supporting New Zealanders and the economy while earning a fair return?

The SOE legislation says one of the principal objectives should be a sense of social responsibility, and they operate with the interests of the community in mind. Ministers preach that private sector companies should operate with a “social license”, but the companies they control don’t.

The OECD (an organisation supporting rich countries) stated that the electricity market poses a challenge to our productivity, and previous changes have been ineffective. A joint appeal was made by organisations representing businesses, consumers and even electricity retailers to fix the broken electricity market. Overseas investments in industries that are heavy electricity users will be jeopardised without a reasonably priced supply.

Economist Geoff Bertram told RNZ that many electricity companies were overly focused on generating profits. “What the big gentailers did for about a decade is sit on their hands, take out huge dividends and do very little investing “.

An RNZ investigation found the highest electricity prices were in areas with the lowest incomes. High prices are partly explained by higher lines costs due to distances from main cities and low population densities. However, they were also in areas with less commercially savvy low-income households not being aware of lower offers.

Three out of the four largest electricity companies are majority state-owned enterprises (SOE). Taxpayers own 51% of: Genesis Energy, Mercury and Meridian Energy. Consumer NZ stated that these companies generated eye-watering profits last year. Meridian quadrupled its profits and increased revenue by 50%. Mercury increased their revenues by 25%. Genesis made lower profits but increased revenue by 32%.

It’s easy for companies in monopolistic industries to maximise profits. Former Prime Minister John Key should never have sold these enterprises, especially after losing a referendum. We are paying excessive prices and giving away half the profits.

Air New Zealand, another majority state-owned company, is reputed for excessive price hikes in the domestic market, where it has an over 80% market share. The government is repeating these mistakes by selling a share of Kiwi Bank. We are unlikely to see any benefit beyond a sugar hit during the transition period when they compete to grow their market share.

An enterprise reflects the incentives offered to its executives. With Meridian Energy, the CEO has incentives to double his salary. A short-term incentive of 50% of salary (60% was based on financial performance last year) and a long-term 40% based on shareholder returns – hardly something to focus his mind on social license. It’s a similar story for Mercury and Genesis Energy.

The generating companies own many retailers, stifling competition. The Energy Competition Task Force announced a few changes to enhance competition, including a ban on preferential pricing for retailers owned by generating companies. Consumer NZ stated that the changes were incremental and unlikely to benefit families facing soaring energy bills.

If Minister of Energy Simon Watt wants the electricity market to work for us and the country, the incentives for companies and their executives must change. The government can’t be a passive investor, watching from the sidelines while we pay high prices and businesses suffer.

“For a corporation to flourish, it must contribute to the flourishing of the society that it operates in”, SirJohn Kay, leading British Economist and a Financial Times columnist. This shouldn’t be too much of an ask from majority govt-owned corporations and their shareholders.