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Why pick on banks when monopoly electricity networks make 10 time more profit?

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After two days of debate on the Federal Government’s proposed big bank levy, it appears that Scott Morrison’s only justification for the levy is that Australia’s banks are profitable and unpopular.

Lazy policy indeed.

I don’t usually feel sorry for the banks, but on the basis of Scott Morrison’s profitability and unpopularity criteria, there is a much more obvious target sector for such a levy.

Few people would understand this more than Anna Bligh – ex-Queensland Premier and Treasurer; now CEO of the Australian Bankers Association.

As Bligh is well aware, Australia’s monopoly electricity networks are the most profitable businesses in Australia – by far.

Over a year ago, I performed an analysis of the actual returns that the Queensland government realised from its investment in two electricity networks (Powerlink Queensland and Energex) over the previous 15 years; and compared those returns with the returns that it would have realised if it had invested the same dollars in blue-chip ASX 50 companies in other sectors of the economy.

That analysis confirmed what the networks and their owners have known for many years – that Australia’s monopoly electricity networks are achieving many multiples of the returns of any other sector of the Australian economy.

For example, as illustrated in the chart below, over the past 15 years, the Queensland government’s equity investment in Powerlink Queensland accrued returns of:

  • 23 times the returns achieved by the Australian construction sector (Lend Lease)
  • 15.5 times the returns achieved by the Australian telecommunications sector (Telstra)
  • 10.5 times the returns achieved by the Australian minerals and resources sector (BHP)
  • 10 times the returns achieved by the Australian banking sector (NAB)
  • 3.6 times the returns achieved by Australia’s most profitable supermarket (Woolworths)

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With Australia’s electricity networks achieving such extraordinary returns, it is not surprising that investors are queuing up to purchase them when they come up for sale, paying well in excess of the networks’ regulatory valuations.

This week’s announcement of the NSW Government’s sale of Endeavour Energy at a multiple of 160% of the network’s regulatory valuation (which followed the recent 165% multiple achieved from the sale of the NSW transmission network (TransGrid)) is yet another confirmation that investors expect to continue to realise extraordinary profits at consumers’ expense, by exploiting Australia’s deeply flawed network regulatory framework.  

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  • trackdaze

    Being majority owned by govt the networks are already a signicant tax on australians and as we are seeing the best way to take what once was a competitive advantage to become the best way to support jobs and growth……in other countries!

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    • MrMauricio

      this IS one “tax” which could be reduced and massively stimulate the economy.

    • OnionMan77

      As the inimitable John Clarke observed, the power companies are government owned: Singapore and Chinese government owned.

  • howardpatr

    Monopoly electric networks, wholesalers and retailers who are assisted in places like the Australian Capital Territory where the Labor/Greens Government participates in a RIP-OFF by ActewAGL and Origin who can buy solar electricity for about 6 cents and sell it for 20 plus cents.

    • Gnoll110

      Historical context, ACTEW Corp (ACT Electricity & Water) was sold to AGL Ltd by Kate Carnell’s Liberal ACT government in 2000. This mess has history.

  • daroiD8ungais7

    Are you comparing the profits of owning a private company vs the profit obtained from the value of shares in a publicly listed company?? Is that a fair comparision?

    • hugh grant

      Its an apples for apples comparison of the returns (income plus capital growth) on the equity invested – i’d be happy to share the methodology with you….

      • daroiD8ungais7

        That would be great. Thanks!

        • hugh grant

          Please give me a call or email to discuss

  • John Herbst

    I hope these sales/leases don’t come with promises of continuing regulatory complacency. What am I thinking… of course they do!

  • Steven Gannon

    I get the feeling that would cause huge political controversy, despite the public disliking them. The would likely pass it on to consumers too.

    • hugh grant

      Yes Steven. Unfortunately, the current network regulatory framework provides the networks with guaranteed after tax returns, so they would be automatically compensated for any such levy – I don’t think the networks could have designed a more “bullet-proof” regulatory framework!

      • Steven Gannon

        Good grief. The more I learn the more I shake my head.

      • Steven Gannon

        Good grief, the more I learn the more I shake my head.

        Quick story. I was a cab driver in Sydney in 1992, one afternoon I picked up four suits. The young guy got in the front, he was bursting with excitement. “We’ve just bought a power company, just now, I can’t believe it”. I shook my head that time too.

      • Lorenzo2012

        Nationalization is always an option?

  • james gibson

    Except they don’t make 10x more profit. Banks make far more profit in Australia than any electricity company. Why are you posting falsehoods?

    • hugh grant

      If you’d read the article you’d appreciate that the profits are expressed as a return on their equity investment over the 15 year study period. I’d be happy to share the data with you if you wish?

  • james gibson

    This article is just trash. It should be taken down.

    • hugh grant

      Thanks for your constructive feedback James – I’d be happy to explain to you why you are wrong if you are willing to listen to the facts

  • rave swei

    utilities used to be non-for profit companies that were only providing services. Than with the rise of neoliberalism they were first converted into state owned corporations that were effectively used to tax people (because it’s impossible to avoid these charges) and than they were privatised so that our political mates can tax people