Debate on Crown Entities, Public Organisations, and State Enterprises — Genesis Power

I am very pleased to stand and discuss the financial review of Genesis Power. Genesis Power is a developer and procurer of fuel sources, a generator of electricity, and a retailer and a trader in energy. It supplies 19 percent of New Zealand’s electricity. As a result of the enactment of the Electricity Industry Act 2010, in June 2011 Genesis purchased two of Meridian Energy Ltd’s hydro generators, Tekapō A and Tekapō B. This acquisition of the two hydros changed the generating portfolio of Genesis. Dame Jenny Shipley, the chair of Genesis, reported to the Commerce Committee that Genesis went into the South Island market, and in a difficult environment succeeded in securing and actually exceeding its targets in terms of the numbers of people who joined Genesis. She reported that it was a very competitive environment, but that competition was good for customers, and it also made companies perform very well indeed. She said that its approach was to try, through good customer service, to reduce and avoid churn.

Many of the energy companies reported, as did the Electricity Authority, on the effect of what they call churn, where through the website www.whatsmynumber.org.nz consumers have the opportunity to compare retail prices, and be able to switch between those retail companies in order to get the best price for their electricity. What they intended to do, and did, was understand the customers, relate to them in terms of communication response time, time to serve, getting back to people, solving their problems, and so forth, and also offer a range of products that met different customers’ profiles. So the competition that www.whatsmynumber.org.nz has created has caused a great response to the market, and the effect of that has been the reduction in prices, particularly around those discounts for early payment. One energy company increased its discount from 10 percent to 22 percent because of that. So it has had a very positive effect.

In 2010-11 Genesis generated revenue of around $1.8 billion, and it made an overall post-tax loss of $17 million, partly as a result of the $97 million revaluation costs when there was a revaluation of the Tekapō B station, particularly for the forward planning around work it wanted to do there. It acquired 26,500 additional South Island customers.

Genesis Power is one of the energy companies in which the Government will offer 49 percent interest in the mixed-ownership model. Inevitably, this came up in discussion at the financial review by the Commerce Committee. Dame Jenny Shipley reported that she was very happy with both the board and the management’s performance. She reported that Genesis raised debt. It raised a corporate bond in order to fund the transaction of purchasing Tekapō A and Tekapō B, and having a listed bond required it to give every consideration to performing as if it was a listed entity. This came up, I understand, last week in the debate in the House.

One member of the committee asked: “what is the upside, in your view or the board’s view … [regarding] partially floating a sound company” …?” The chair, Dame Jenny Shipley, replied: “let me say that I think taxpayers are entitled to know that SOE boards attempt to run these companies in the best way possible.” But she said that “the second point in the case of Genesis is we do have a corporate bond, and so we actually have real and legal obligations to continuous disclosure—we have to—in any material decisions that we make. So we are right in the zone, and, frankly, the board’s skill, attention, and competency has … already moved into that space.” She went on to say that it was “because of the bond requiring us to pay attention in order to partially fund the cost of the Tekapō transaction.” Genesis raised a bond, and because of that bond issue, according to the chair it became subject to market scrutiny regarding their company performance.

Report noted.

Landcorp Farming

Report noted.

New Zealand Railways Corporation