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Users take swipe at power market

Tom Pullar-Strecker tom.pullar-strecker@stuff.co.nz

Meridian Energy has made $3.5 billion in ‘‘excess profits’’ over the past 20 years, according to a study commissioned by the Major Electricity Users Group, which says high power prices are costing jobs.

It says Meridian’s excess profit over the past five years alone totalled almost $2b, and questions whether that could be evidence of ‘‘persistent market power’’.

The Major Electricity Users Group (MEUG) is calling for urgent measures to ‘‘curtail the near-term effects of high prices’’ before any decisions on a longer-term fix for the sector.

Energy Minister Megan Woods says the group’s analysis raises questions about whether the electricity wholesale market is operating as it should.

‘‘The electricity system must be fit for purpose in terms of security of supply and it must also be fair to consumers, whether they be large industrial users or residential users,’’ she says.

But Meridian disputes the conclusions of the study and, in a statement, questions the credibility of the MEUG, whose members include Fonterra, BusinessNZ, New Zealand Steel, supermarket group Countdown and brewer Lion.

MEUG chairman John Harbord says Meridian’s rising level of profitability has ‘‘outperformed the level of profit-making seen in the Commerce Commission’s retail fuel market and ongoing supermarket studies’’.

Some MEUG members spend tens of millions a year on electricity and have seen their power costs rise between 250 per cent and 400 per cent over the past three years, he says.

They have lost confidence in the outcomes being delivered by the wholesale electricity market, he says. ‘‘It has certainly reduced investment into manufacturing and industry, which doesn’t bode well for the future.’’

Broker Forsyth Barr has estimated the combined operating profits of the big four ‘‘gentailers’’, which also include Genesis, Mercury and Contact, edged down 2.6 per cent to just under $2.1b in the year to the end of June.

It has forecast Meridian will report a 20 per cent drop in its net profit, to about $410m for the year to the end of June, when it releases its annual result today.

But Harbord says that does not allay the MEUG’s concerns.

Its study was 15 months in the making and was conducted by financial adviser Ireland Wallace & Associates.

It looks at the returns Meridian made when compared with its ‘‘weighted cost of capital’’, and is similar in nature, though not identical, to the way the Commerce Commission often assesses profitability, he says.

Ireland Wallace & Associates calculates that Meridian enjoyed an enviable 25.4 per cent return on capital last year. That was after setting aside the upward revaluations it made of its power plants in its accounts, and focusing instead on the ‘‘normal historic cost’’ of those assets.

Harbord says the Commerce Commission has provided grounds in the past for adopting that approach. ‘‘It’s quite a different type of reporting than the accounting profit metrics that the publicly listed companies are using.’’

The MEUG decided to single out Meridian’s profitability for study because it was the largest generator and its accounts were very well laid out, but it was nevertheless ‘‘not a trivial exercise’’, he says.

‘‘Because we haven’t looked at any of the other generators, I couldn’t really comment on whether or not we would expect to see the same thing.’’

Harbord agrees the recent extremes in Meridian’s profitability might be explained by the industry having long investment cycles. ‘‘This may be a sort of ‘longish temporary situation’.’’

But the fundamental issue is the loss of confidence in the wholesale market, he says.

Meridian chief financial officer Mike Roan says the company hasn’t had the opportunity to fully review the study, which was supplied to it by the MEUG on Monday.

‘‘What we can say is this report is radically out of step with the findings of the 2018 Electricity Price Review and independent analysis by PwC on this topic.

‘‘The lack of transparency around the release isn’t usual form for the business community, which leads us to question the report’s credibility and the tactics behind its release.’’

The Government’s Electricity Price Review ‘‘looked into the profitability question and determined there was no evidence that companies in the electricity sector were making excessive profits’’, he says.

The more detailed conclusions of the review – as reported by the Ministry of Business, Innovation and Employment – were that there were ‘‘ongoing questions about whether generators are making excessive profits at the expense of consumers’’.

‘‘This risks undermining confidence in the wholesale market,’’ it said. ‘‘Whilst the review found no evidence to support this contention, it recommended the Electricity Authority require vertically integrated companies to report separately on the financial performance of their retail and generation operations using a common set of rules. This will assist market participants and others assess whether generators are making excessive profits.’’

The Electricity Authority, which regulates the power market, is due to complete a study into the wholesale market next month.

There is speculation the authority may recommend that Meridian be forced to divest some of its generation assets, most of which are hydro power plants, to reduce its market power.

Labour campaigned for a much broader overhaul of the power market in 2013 when it proposed switching to a ‘‘single-buyer model’’ for the sector, but abandoned that after losing the 2014 election.

That model would have seen private sector firms compete to supply and sell power at the cheapest price, but with a new state-owned agency, NZ Power, sitting in the middle, paying generators only what power cost to produce, plus a profit margin.

Harbord says the MEUG does not have views on that option, and is also ‘‘not for or against’’ structurally separating the big gentailers into separate generation and retail businesses, as has been proposed by some independent retailers.

But he says the future ‘‘looked very different now to when the wholesale electricity market was first established back in the 1990s’’.

‘‘It is clearly time to take a step back and check that the design features of the market remain fit for this future – to ensure efficient adoption of cost-effective new technologies and support a just transition to meet our net zero obligations.’’

He says the MEUG is ‘‘reserving its opinion’’ on the wholesale review being done by the Electricity Authority, which in April defended the current structure of the industry, describing New Zealand’s power market as ‘‘well-regarded internationally’’.

‘‘We do have some concerns. But at the same time it’s worth noting that the Electricity Authority widened the scope of its market review in March, and it subsequently included the issue of looking at profit-making on the supplier side,’’ Harbord says.

‘‘We’re taking them at face value that they are taking the issue very seriously. But ultimately we’ll reserve final judgment until we see the quality of the work they put out.’’

Harbord believes it would be cynical to think the Government would be reluctant to reform the industry simply because it was a 51 per cent owner of Meridian, Mercury and Genesis.

‘‘We know the minister is very focused on the outcomes the wholesale market is producing, and particularly concerned, I think, about the potential impacts on jobs, and for very good reason.’’

He says more businesses are also having to pass on the cost of higher power bills to consumers.

It is clearly time to take a step back and check that the design features of the [wholesale] market remain fit for this future.

Humans evolved under attack. Not just from ancient predators such as sabre-toothed tigers and cave lions but from tiny microscopic invaders too – the bacteria, fungi and viruses that surround us.

Over millennia, a molecular arms race between pathogen and immune system has sharpened our body’s defences and most of these ‘‘foreign agents’’ are killed before they can get very far. But Covid-19 emerged in people only in late 2019 and so modern medicine has swung into action to shortcut evolution and manufacture immunity in a bottle instead.

Within a year of the pandemic beginning, a number of vaccines had already passed clinical trials, safe and more effective than most scientists dared hope. But what do we know about how the Covid shots affect the body? And what are the side effects?

Why do vaccines cause side effects?

When your body spots an intruder, such as a virus, it has two main lines of defence. The first is its generic attack, known as your innate immunity, that springs into action at the first sign of trouble. Often that’s enough.

But, the rest of the immune system develops a specialised second wave of attackers, just in case. This is your adaptive immunity – antibodies made to fit the exact shape of the virus and ‘‘gum it up’’ so it can’t hack into cells, and T-cells to kill those cells already infected.

Some will remember that shape so they’re primed to attack next time, says Australian National University (ANU) immunological researcher Professor David Tscharke.

Vaccines work by training your body to mount this adaptive defence without you actually having to catch the virus. In the case of Covid-19, they introduce your body to a tiny piece of the virus (the signature spike protein it uses to break into our cells). This won’t make you sick but, like a mugshot, it helps your body hunt the real virus fast if it ever arrives on the scene.

Of course, that only works if your body actually thinks it’s under attack, Tscharke says. Imagine vaccines as a kind of reverse Trojan horse, harmless but dressed up to look dangerous. When the immune system is tripped, white blood cells are immediately called to the injection site to investigate, causing inflammation. ‘‘That’s why just about everyone gets a sore arm,’’ Tscharke says.

In fact, many symptoms of viruses are caused by our immune system launching into attack mode, which is why many viruses feel similar – and why vaccine side effects often do, too. Turning up the heat with a fever, for example, can make it harder for viruses and bacteria to replicate in your body.

The Covid vaccines do come with a higher chance of these mild effects than your standard flu shot. But they also have impressively high efficacy rates compared to many of the inoculations already out there – not quite as effective as polio and measles but generally better than shots for chickenpox, mumps and the flu. That means they are great at activating your immune system.

Side effects are a ‘‘good sign that the immune system is responding to the vaccine’’, says paediatric immunologist Professor Peter Richmond. They are usually mild, though he says roughly one in five people will feel ill enough to need a day off work. ‘‘For the AstraZeneca vaccine [they tend to come] after the first dose, whereas from Pfizer it tends to be after the second,’’ he says.

Common side effects for Covid vaccines (including Pfizer and AstraZeneca, two of the three vaccines provisionally approved by New Zealand’s Medsafe; only Pfizer has been approved by Cabinet) are injection-site pain, fatigue, headache, nausea, muscle ache and joint pain, dizziness, fever.

So if I don’t get side effects, does that mean the vaccine hasn’t worked?

No. In trials of the Pfizer and Moderna mRNA vaccines, more than 90 per cent of people developed protective immunity against a symptomatic case of Covid but only half reported side effects, most of them mild. And further testing has shown that people vaccinated without side effects have still developed the virus-killing antibodies they need.

As Tscharke explains, these common vaccine side effects are generally associated with the body’s innate immune response but we don’t necessarily need a huge innate response to wake up the second, adaptive, response. (That takes about two weeks to develop after being vaccinated.) ‘‘There’s a threshold, and for some people that local response, the sore arm, might be enough to start the second.’’

It’s the same reason some people might shrug off a cold that floors others. So far, young people, whose immune systems tend to be particularly robust, and those who have already had Covid, somewhat more mysteriously, seem the most likely to get these common effects from the vaccines.

With vaccines being closely surveilled in the community, at least in the developed world, there’s also a higher chance that rare complications linked to the shots will be picked up.

All complications are significant, though they have been ‘‘vanishingly rare’’, says virologist Professor Gary Grohmann, who used to run vaccine testing at Australia’s medical regulator, the Therapeutic Goods Administration (TGA), and now consults for WHO. ‘‘But it’s good we’re finding them.’’

Tscharke adds: ‘‘That risk of something happening is there for all vaccines and all

Opinion Analysis

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2021-08-25T07:00:00.0000000Z

2021-08-25T07:00:00.0000000Z

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