The country's second-largest electricity gentailer says rising electricity prices are the result of rising lines charges.
Inflation's now back up at three-percent.
The single biggest driver is electricity prices - which have increased 11.3 percent in the past year.
Contact Energy Chief Executive Mike Fuge says electricity firms are having to pass on the fixed lines charges that cover the cost of infrastructure.
He says they rose by about 20-percent last year and about 16-percent this year.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
News on the power from and Fratilla's putting almost half
a billion into Contact Energy, as Andrew alluded to earlier
on in the program, Forsyth BARSI a fifteen percent net
profit to what was to jump to three hundred and
eighty eight million. They think we also have another gas
price rise coming. This one's seventeen percent for more than
forty thousand homes. So there's a lot to talk about
in the world of power and energy. Generally, my fuse
(00:20):
as the CEO of Contact Energy and is back with us.
Mike Morning to you, Morning, Mike, how are you? I'm well,
thank you. Are you sort of in a rock and
a hard place. I mean, it's wonderful to talk about profit,
except when they come from people who hate you because
you're putting the power price up.
Speaker 2 (00:35):
Look, I think there's two things in that. One is
our profits rising because we're investing, and that's a quid
pro quote. I think the second thing to understand is
that for electricity prices, the primary driver of these price increases.
We're seeing other lines charges, which fortunately they are regulated.
And the next price part was set when interest fates
(00:57):
were almost double what they are today, So that's unfortunately
that's the regulated part of the industry in the where
the gentators where we're competing hard spot prices that come
right off.
Speaker 1 (01:13):
A Forsyth bar roughly right. They're estimating you're going to
have not operating profit of two forty two. That's for
the three months to the end of September. That'll rise
to three eighty eight in the year to June next year,
four seventy five by June twenty seven, to five nine
by the year after that. I mean that's big, big money, yes.
Speaker 2 (01:30):
And that just reflects the amount of investment we've put
into geo thermal, but now we're putting into solar batteries
and even potentially wins. So the amount that we have
invested in both to Harder and Tohoka three is an
excess of a billion dollars. And we've got the replacement
for Whitaki well underway. That's another six seven hundred million dollars.
(01:51):
We've got the battery at Glenbrook, we're thinking about expanding
that even further. And we've got the solar farm down
at christ At Airport, which will be New Centland's biggest,
and we're now looking at one north of Auckland upper Talentsville.
So we're busy and all that reflects is high quality investment.
Speaker 1 (02:09):
Yep, but with returns, which is why and Fratilla involved,
because they want the business, they want the cash, they
want the dividends. I mean, you are making money. There's
no hiding from that. And I'm not saying it.
Speaker 2 (02:17):
Well, no, we are making money. We are not. We're
not embarrassed by that at all. If you make good investments,
then you make good money that we are very proud of. That.
Speaker 1 (02:25):
Explain to it, just really simple terms that the eleven
percent plus in the business of inflation, how do you
defend that as an industry that.
Speaker 2 (02:34):
Is primarily coming from the lines charges, the lines and
transmission charges, which are the regulated part of the power bill,
and they are rising. So they rose by about twenty
percent last year. I think the average rise of the
line's charge is about sixteen percent this year. That's set.
Those price raises are in effect the regulated part of
(02:56):
the market, and they're set by the Commerce Commission on
the basis of interest rates. And unfortunately, when they were
last set, interest rates were at their absolute peak.
Speaker 1 (03:07):
Okay, do you subscribe generally to the idea that your
contribution the industry's contribution to the inflation. Overall inflation picture
is going to come down substantially going forward.
Speaker 2 (03:20):
It has and it already has come down substantially, and
it will come down as more and more of this
new reviewalful generation comes online and more and more gr
thermal comes online. That part of the powerbill will flattened
out considerably, and it already has. It's well on line
with inflation.
Speaker 1 (03:42):
Gas is involved, but separate. So what I was reading
is the gas Spott price was fourteen bucks on Friday,
you're selling it for forty one, suggesting being something like methodics,
a big play like method X pays six. Are those
figures about right?
Speaker 2 (03:56):
Look, gas prices have gone you have to have gone
up substantially. You have to look at the long term
price of gas. So when the Malei reserves crisis hit
twenty years ago, it was about four dollars, then rows
to eight dollars. As the as we had the last
round of drilling and the all in Gaspan it has
(04:19):
come up. The long term prices come up again, almost
doubling to somewhere between the fifteen to twenty dollars range
and the wholesale market sometimes the spot goes a bit lower,
and so all that reflects is the scarcity of gas
and a declining gas supply, and that's just a market working. Yeah,
I get that, but.
Speaker 1 (04:40):
I understand gas more than I understand power because you
can make more power. There seems to me there's no
excuse for not having more power in this country because
you can investigate and make it, whereas you can't make gas,
especially if you're not looking for.
Speaker 2 (04:50):
It exactly right.
Speaker 1 (04:52):
So what I mean what literally happens to gas? You
just keep charging more and more and more as there's
less and less of it, and people what either convert
will stop using it, all their business closes.
Speaker 2 (05:02):
I think the big thing is is Number one, we
keep the lights on and we keep houses warm, so
we keep the fine gas, and we're stepped into that
space with both retail and all of government homes, hospitals,
and schools, keep the lights on, keep them warm. I
think the second point is that large gal industries, in particular,
people who can convert where the time is right, not
(05:26):
forcing them, but when the time is right, when the
appliances become obsolescent, we encourage the conversion to electricity at
that point, and industries We're already actively helping industries convert.
We've done that at New Zealand Steel. We're working with
Fonterra and other dairy companies to convert. So there is
(05:46):
conversion happening. But the important thing is is that it's
a well caught out and managed transition and that leads
enough gas for the long term for those really hard
to convert users.
Speaker 1 (05:57):
What's the light what's the timeline on the amount of
investment for renewables whereby my power bill comes to a
level goes down. Do you think it will ever go down?
I mean, I'm assuming at some point there's so much
generation that either you guys go hang on, we need
to stop at this point, otherwise going to start losing money,
or the price of power actually comes down becomes more affordable.
Speaker 2 (06:17):
I think renewable energy is one of New Zealand's secret gifts.
And as we build more and prices stabilized, maybe come
down a little bit, we will become incredibly attractive to
overseas companies to invest here on the basis of a
fantastic renewable energy source. It's already creating jobs in the
construction of these projects, and as we can attract new
(06:38):
industry here on the basis of a very plentiful supply.
That's a great outcome for New Zealand.
Speaker 1 (06:43):
When's that happening?
Speaker 2 (06:44):
Though, that will be happening over the coming years. We
can always already see two or twenty five, five to
ten years. I think you will see industries coming here
to New Zealand because of our renewable energy supply.
Speaker 1 (06:57):
And does that include data centers and AI and all
that other stuff? Me are we building capacity at that level?
Speaker 2 (07:03):
It may include data centers. Obviously, a stable, reliable country
like New Zealand with a fantastic renewable energy source is
very attractive to both sorts of industries. It could well
attract other industries as well, So we just keep looking
out for those.
Speaker 1 (07:19):
Okay, the how we are think lake? How we are?
You back down a bit on that is that, I mean,
how big an issue is nimbiism? Wherever you go?
Speaker 2 (07:29):
Oh look, all we're looking for Lake Harware is an
increased operating range so that we can run the lake
a little bit lower and that allows the water to
be caught rather than spill down the river around November December.
And it's an operating range that prior to the Resource
Management Act was well established and we're just seeking a
(07:50):
little bit more flexibility on that lake. Look, nimbiasm is
always going to be an issue. It's going to be
an issue for wind farms, and we just as a nation,
we just have to have that ski. But at the
end of the day, it's an opportunity and a little
bit of more flexibility on our hyd risk scheme goes
a long way. Go back to that first question your
start at to slowing the guest shortage. The flexibility is
(08:13):
so valuable to us as a country and we should
be grasping hold of the opportunity.
Speaker 1 (08:17):
Good stuff. Appreciate your inside as always. Mike Fushu's the
chief executive officer at Contact Energy. I think one of
the keys there was price is stabilizing. And that's the
thing about price. I mean, we're giving you the numbers
on construction earlier on this morning. Prices really I mean
frint vegetables, they do. But apart from that, price has
really ever come down. So what you're dealing with the
best you can hope for, it just doesn't keep going up.
Speaker 2 (08:38):
For more from the Mic Asking Breakfast, listen live to
news Talks that'd be from six am weekdays, or follow
the podcast on iHeartRadio
News on the power from and Fratilla's putting almost half
a billion into Contact Energy, as Andrew alluded to earlier
on in the program, Forsyth BARSI a fifteen percent net
profit to what was to jump to three hundred and
eighty eight million. They think we also have another gas
price rise coming. This one's seventeen percent for more than
forty thousand homes. So there's a lot to talk about
in the world of power and energy. Generally, my fuse
(00:20):
as the CEO of Contact Energy and is back with us.
Mike Morning to you, Morning, Mike, how are you? I'm well,
thank you. Are you sort of in a rock and
a hard place. I mean, it's wonderful to talk about profit,
except when they come from people who hate you because
you're putting the power price up.
Speaker 2 (00:35):
Look, I think there's two things in that. One is
our profits rising because we're investing, and that's a quid
pro quote. I think the second thing to understand is
that for electricity prices, the primary driver of these price increases.
We're seeing other lines charges, which fortunately they are regulated.
And the next price part was set when interest fates
(00:57):
were almost double what they are today, So that's unfortunately
that's the regulated part of the industry in the where
the gentators where we're competing hard spot prices that come
right off.
Speaker 1 (01:13):
A Forsyth bar roughly right. They're estimating you're going to
have not operating profit of two forty two. That's for
the three months to the end of September. That'll rise
to three eighty eight in the year to June next year,
four seventy five by June twenty seven, to five nine
by the year after that. I mean that's big, big money, yes.
Speaker 2 (01:30):
And that just reflects the amount of investment we've put
into geo thermal, but now we're putting into solar batteries
and even potentially wins. So the amount that we have
invested in both to Harder and Tohoka three is an
excess of a billion dollars. And we've got the replacement
for Whitaki well underway. That's another six seven hundred million dollars.
(01:51):
We've got the battery at Glenbrook, we're thinking about expanding
that even further. And we've got the solar farm down
at christ At Airport, which will be New Centland's biggest,
and we're now looking at one north of Auckland upper Talentsville.
So we're busy and all that reflects is high quality investment.
Speaker 1 (02:09):
Yep, but with returns, which is why and Fratilla involved,
because they want the business, they want the cash, they
want the dividends. I mean, you are making money. There's
no hiding from that. And I'm not saying it.
Speaker 2 (02:17):
Well, no, we are making money. We are not. We're
not embarrassed by that at all. If you make good investments,
then you make good money that we are very proud of. That.
Speaker 1 (02:25):
Explain to it, just really simple terms that the eleven
percent plus in the business of inflation, how do you
defend that as an industry that.
Speaker 2 (02:34):
Is primarily coming from the lines charges, the lines and
transmission charges, which are the regulated part of the power bill,
and they are rising. So they rose by about twenty
percent last year. I think the average rise of the
line's charge is about sixteen percent this year. That's set.
Those price raises are in effect the regulated part of
(02:56):
the market, and they're set by the Commerce Commission on
the basis of interest rates. And unfortunately, when they were
last set, interest rates were at their absolute peak.
Speaker 1 (03:07):
Okay, do you subscribe generally to the idea that your
contribution the industry's contribution to the inflation. Overall inflation picture
is going to come down substantially going forward.
Speaker 2 (03:20):
It has and it already has come down substantially, and
it will come down as more and more of this
new reviewalful generation comes online and more and more gr
thermal comes online. That part of the powerbill will flattened
out considerably, and it already has. It's well on line
with inflation.
Speaker 1 (03:42):
Gas is involved, but separate. So what I was reading
is the gas Spott price was fourteen bucks on Friday,
you're selling it for forty one, suggesting being something like methodics,
a big play like method X pays six. Are those
figures about right?
Speaker 2 (03:56):
Look, gas prices have gone you have to have gone
up substantially. You have to look at the long term
price of gas. So when the Malei reserves crisis hit
twenty years ago, it was about four dollars, then rows
to eight dollars. As the as we had the last
round of drilling and the all in Gaspan it has
(04:19):
come up. The long term prices come up again, almost
doubling to somewhere between the fifteen to twenty dollars range
and the wholesale market sometimes the spot goes a bit lower,
and so all that reflects is the scarcity of gas
and a declining gas supply, and that's just a market working. Yeah,
I get that, but.
Speaker 1 (04:40):
I understand gas more than I understand power because you
can make more power. There seems to me there's no
excuse for not having more power in this country because
you can investigate and make it, whereas you can't make gas,
especially if you're not looking for.
Speaker 2 (04:50):
It exactly right.
Speaker 1 (04:52):
So what I mean what literally happens to gas? You
just keep charging more and more and more as there's
less and less of it, and people what either convert
will stop using it, all their business closes.
Speaker 2 (05:02):
I think the big thing is is Number one, we
keep the lights on and we keep houses warm, so
we keep the fine gas, and we're stepped into that
space with both retail and all of government homes, hospitals,
and schools, keep the lights on, keep them warm. I
think the second point is that large gal industries, in particular,
people who can convert where the time is right, not
(05:26):
forcing them, but when the time is right, when the
appliances become obsolescent, we encourage the conversion to electricity at
that point, and industries We're already actively helping industries convert.
We've done that at New Zealand Steel. We're working with
Fonterra and other dairy companies to convert. So there is
(05:46):
conversion happening. But the important thing is is that it's
a well caught out and managed transition and that leads
enough gas for the long term for those really hard
to convert users.
Speaker 1 (05:57):
What's the light what's the timeline on the amount of
investment for renewables whereby my power bill comes to a
level goes down. Do you think it will ever go down?
I mean, I'm assuming at some point there's so much
generation that either you guys go hang on, we need
to stop at this point, otherwise going to start losing money,
or the price of power actually comes down becomes more affordable.
Speaker 2 (06:17):
I think renewable energy is one of New Zealand's secret gifts.
And as we build more and prices stabilized, maybe come
down a little bit, we will become incredibly attractive to
overseas companies to invest here on the basis of a
fantastic renewable energy source. It's already creating jobs in the
construction of these projects, and as we can attract new
(06:38):
industry here on the basis of a very plentiful supply.
That's a great outcome for New Zealand.
Speaker 1 (06:43):
When's that happening?
Speaker 2 (06:44):
Though, that will be happening over the coming years. We
can always already see two or twenty five, five to
ten years. I think you will see industries coming here
to New Zealand because of our renewable energy supply.
Speaker 1 (06:57):
And does that include data centers and AI and all
that other stuff? Me are we building capacity at that level?
Speaker 2 (07:03):
It may include data centers. Obviously, a stable, reliable country
like New Zealand with a fantastic renewable energy source is
very attractive to both sorts of industries. It could well
attract other industries as well, So we just keep looking
out for those.
Speaker 1 (07:19):
Okay, the how we are think lake? How we are?
You back down a bit on that is that, I mean,
how big an issue is nimbiism? Wherever you go?
Speaker 2 (07:29):
Oh look, all we're looking for Lake Harware is an
increased operating range so that we can run the lake
a little bit lower and that allows the water to
be caught rather than spill down the river around November December.
And it's an operating range that prior to the Resource
Management Act was well established and we're just seeking a
(07:50):
little bit more flexibility on that lake. Look, nimbiasm is
always going to be an issue. It's going to be
an issue for wind farms, and we just as a nation,
we just have to have that ski. But at the
end of the day, it's an opportunity and a little
bit of more flexibility on our hyd risk scheme goes
a long way. Go back to that first question your
start at to slowing the guest shortage. The flexibility is
(08:13):
so valuable to us as a country and we should
be grasping hold of the opportunity.
Speaker 1 (08:17):
Good stuff. Appreciate your inside as always. Mike Fushu's the
chief executive officer at Contact Energy. I think one of
the keys there was price is stabilizing. And that's the
thing about price. I mean, we're giving you the numbers
on construction earlier on this morning. Prices really I mean
frint vegetables, they do. But apart from that, price has
really ever come down. So what you're dealing with the
best you can hope for, it just doesn't keep going up.
Speaker 2 (08:38):
For more from the Mic Asking Breakfast, listen live to
news Talks that'd be from six am weekdays, or follow
the podcast on iHeartRadio
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