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BusinessAugust 14, 2024

New report reveals Auckland still has no idea what it wants to be when it grows up

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A report comparing Auckland’s performance against 10 other cities reveals familiar problems. Mayor Wayne Brown says it’s worthless. Duncan Greive disagrees.

Downtown Tāmaki Makaurau is where the big four multinational consultancies have set up shop, each with their name on a building, each attempting to win a corporate prestige measuring contest. EY is stumpy, but has the best playground, with Britomart at its front door. PWC’s is easily the tallest – but some (admittedly exceptional) gamers have the top floors, which takes the shine off a little. KPMG has bet on Wynyard Quarter – so far, so TBC on that. 

Deloitte might have them all beat – it’s directly across from the grandeur of the downtown ferry building, with extraordinary 270 degree views of the Waitematā harbour. Which makes it the perfect aspirational backdrop to the release of a new report that aims to test the city’s performance against its peers, commissioned by the Committee for Auckland, in conjunction with Tātaki Auckland Unlimited and Deloitte itself. 

Called “The State of the City”, the report was put together by the Business of Cities, a London-based consultancy, and runs to a hefty 77 pages. It tests Auckland against a prestigious peer group of mid-size global cities, comprising Austin, Brisbane, Copenhagen, Dublin, Fukuoka, Helsinki, Portland, Tel Aviv and Vancouver. To grade us, it draws on “more than 120 global city benchmark studies, which together span more than 750 comparative metrics”. Think about the other cities as our classmates – this is our report card.

From 20 storeys up, you’d think we’d ace the test. The raw materials are staggering – tangata whenua and super-diversity, the maunga, the twin harbours, those islands and beaches. Surely that should put us far ahead of Brisbane, Dublin or Austin? Looking out from Deloitte’s country headquarters, you might convince yourself that the report would be glowing.

It ain’t. The report is polite but stark. After some predictable platitudes lauding our diversity, geography and history, it lists off familiar issues around housing affordability, crime and transport, before finally making us sound like a really bad date. “Auckland currently lacks magnetism… Auckland is often viewed for its functionality more than its spirit and sparkle.”

It goes on to measure progress across 10 key areas, using a flower chart which maps progress or decline, and shows the average for all the cities within the study. Reproduced below, it’s an elegant way to display an ugly truth: this city is below average in half the categories, and more likely to be going backwards than making gains.

This chart shows Auckland’s position among the same 10-city peer group assessed in 2023: Auckland, Austin, Brisbane, Copenhagen, Dublin, Fukuoka, Helsinki, Portland, Tel Aviv, Vancouver. Auckland’s position is calculated using an Elo algorithm that takes into account multiple metrics. (Image: Supplied)

Worse still, the areas we’re overperforming in – culture, place and resilience – are those in which the city’s business and political leadership has little to do with. We’re sliding back in connectivity and prosperity, and anaemic in knowledge and innovation. Those pillars might sound overbroad, but they’re underpinned by problems we all recognise: “high cost of living, lower productivity and an increase in unemployment… Infrastructure deficits, slower progress towards decarbonisation and affordability and safety concerns.”

Talking about institutional failure over bagels

Paradoxically, the bad review gave the in-person presentation an enjoyable tension which elevated it from the self-congratulatory vibe that typically accompanies corporate breakfasts. The whole thing is driven by the good people at the Committee for Auckland, which says it exists “to lead the drive to fulfil the city of Auckland’s potential and find ways to deliver on the opportunity for our city and its citizens on the global stage”. It believes Auckland is “a fantastic city, full of potential”. The report says fantastic is highly debatable, and the potential largely unrealised. Awkward. 

The committee, along with cosponsors Deloitte and the council’s tourism and economic development arm Tātaki Auckland Unlimited, invited around 150 people – CEOs, executives, policy types, consultants, many more comms people than journalists – to its unveiling. 

As befitting a problem with many contributors, and a report with many funders, there were 10 different speaking roles across the hour, including mayor Wayne Brown, minister for Auckland Simeon Brown and the report’s lead author, Dr Tim Moonen, beaming in from London. He was unflinching (“the report holds the city up to a pretty harsh glare”) and brilliantly analytical – I could have happily listened to him for the whole hour. He also ran overtime, and had to be delicately cut off mid-sentence by Deloitte’s Auckland lead Kate Sutton. 

She returned home from a role at the UN 18 months ago, the kind of smart, energetic person the city wants to grow and retain – but currently, eye-watering house prices and poor opportunities mean Auckland is a place talent can’t afford to live. It’s easy to make fun of events like this, but Sutton, like all the speakers, radiated a deep and sincere desire to figure this thing out.

The person most tangibly tasked with that is Mayor Brown, who Sutton introduced. He embodies the city in a way – stuck in his ways, narrow-minded, sometimes needlessly hostile, but also possessing an odd charisma and with potential to be great almost in spite of his clumsiness.

A case in point: he opened by dismissing the report we were all there to hear about as “a bit light on solutions” and “it doesn’t tell us a lot that we didn’t already know”. Mostly he used his speech as an opportunity to further advance his one man war against the limits of his role. Namely that local politicians have limited ability to impact the operations of Council Controlled Organisations (CCOs) like Auckland Unlimited, Auckland Transport and the development arm Eke Panuku. This is in fact by central government design, and he critiqued Rodney Hide and Steven Joyce for their roles in that. 

Brown versus Brown

He also strongly implied that he was making good progress towards it changing. That’s why it was so fun that Simeon Brown was up next. His boyish no-relation namesake is minister for Auckland, and he delivered what was mostly a stump speech, much of which covered national issues – speed bumps, speed limits, crime. It could have been given in any city in the country and did not engage with the substantive issues of the report in any meaningful way. 

It only caught fire a little when he obliquely but unmistakably dismissed the elder Brown’s contention that he was about to hand over the keys to the CCOs. The mayor and the minister say they like one another, and I believe them, but that battle – between central and local, between local and National, between Brown and Brown – is clearly not near over.

The two Browns

Simeon Brown did point out that the previous National government had commissioned a number of key pieces of transport infrastructure in the Waterview tunnel, the Vic Park tunnel and the City Rail Link. That last one is in many ways the city’s best and most plausible path out of its malaise – its opening will fix the central city and provide a natural place for huge residential development along the western and southern lines.

The rest of the speakers had less time and influence, but still managed some memorable lines. After Mayor Brown commented that his “management style is to keep up the floggings until morale improves”, Auckland Unlimited’s director of economic development Pam Ford got a zinger in response, noting that her organisation’s job is “slightly challenging when you’re being publicly flogged”. 

A number followed the mayor in making bland comments around helping encourage tech and innovation, perpetually trotted out as a cure for city issues by politicians the world over. That prompted the line of the morning from chair of law firm MinterEllisonRuddWatts, Sarah Sinclair, who acidly dismissed the notion: “every city in the world’s got that idea”. Our next phase of growth requires much greater specificity about which industries we target. This would have the byproduct of giving us a sense of identity which, for all its challenges, Wellington has in spades.

A wero for the city

Sinclair’s speech was one of the shortest, but also the most persuasive. “No matter what the question, infrastructure is probably the answer,” she said. She’s on the board of the infrastructure commission, sure – but she made the case in language the leafy suburbs need to hear around upzoning and intensification. “I live in Westmere,” she said, “if I want a view that will never be obstructed, I’ll move to Kumeū.” 

We need to be “really loud and public” with the tradeoffs, Sinclair said. The line about her home was a neat parable for the whole city. If Auckland is to beat its lethal cocktail of brutal housing costs, mediocre wages, average opportunities and slow, pricy transport, we must accept that what we’ve been doing isn’t working, and the city must change. Not just change in terms of how it looks, but in terms of how it approaches solving its most vexed issues.

‘Media is under threat. Help save The Spinoff with an ongoing commitment to support our work.’
Duncan Greive
— Founder

This will require work from central and local government. Business and academia. Progressives and conservatives. Tauiwi and mana whenua. Consultancies and cultural institutions. Young and old. A whole bunch of communities and institutions, all ceding some ground to plausibly expect a different and durable outcome.

To know whether we’re succeeding, we need to have our homework marked with reports like the State of the City – even if they do only make concrete what we strongly suspect. So on that point, Wayne Brown, bloodyminded but right about some big and uncomfortable things, is wrong. Getting together over coffee and croissants at a fancy office to find out what we already know does matter. Because next year we’ll have our homework marked again. And no one in the room could stomach another report like this.

Keep going!
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BusinessAugust 12, 2024

Our electricity market is short-circuiting. Can it be fixed?

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Small retailers argue we’re paying way too much for power. Big ones say the system is working just fine. Who are we to believe?

It’s been a strange few weeks for our electricity market. First came news that retailer Electric Kiwi would be refusing to take on new customers, citing ballooning wholesale costs that meant they would be running at a loss with every new account opened. 

Last week, an even bigger bombshell – electricity prices also mean Winstone’s huge central North island pulp and timber mills are temporarily shutting, risking hundreds of jobs. This was followed days later by news a paper recycling plant in Penrose was also considering a temporary closure.

Finally, the chair of New Zealand’s second-largest dairy collective talked about New Zealand as “sleepwalking into an energy crisis”. Open Country Dairy is in many ways a poster child for lower emissions agriculture, having converted its boilers to run on waste or wool pellets and set a target of 2025 to move on from coal – yet supply risks it described as essentially a certainty mean it will keep coal-fired boilers on stand-by well into the future.

A business refusing new customers. Another pausing production, risking vital regional jobs. A third having to maintain costly and high emissions equipment. For a country in the economic doldrums, nearly 5% down on a per capita GDP basis, it shows that the cost and reliability of electricity is becoming a major issue. 

The developments prompted an extraordinary interview with Shane Jones, regional development and associate energy minister, on RNZ last Thursday. In it he called the regulator, the Electricity Authority, a “chocolate teapot”, and said the major power companies, known as the “gentailers” are “probably the most powerful economic institutions in New Zealand, beyond the supermarkets and the Aussie banks”. He explicitly called out “profiteering”, a serious and potentially legally consequential accusation.

Winstone cited wholesale prices as high as $700 per megawatt hour (mwh) as driving its closure – up from around $100mwh a couple of years ago. Australia experienced its own sharp price increases this winter yet still kept prices mostly well below that level. Winstone says it has seen energy as a percentage of its costs rise from 10% to 40%, making it unsustainable to operate, and impossible to compete with manufacturers in other countries with cheaper electricity.

How could this happen? Part of our national myth is that New Zealand generates the vast majority of its electricity from cheap, renewable resources – largely hydroelectric projects built in the 70s. Yet a relatively dry winter means hydro lakes are below 60% capacity, hence the high prices – with flow-on devastating outcomes for business.

It’s not an issue for everyone, though. As Jones said, some in the electricity market are making more money than ever. Those involved in electricity generation and retail (the “gentailers”) are dominated by four large companies – Meridian, Contact, Genesis and Mercury – three of which are majority owned by the government. Far from suffering, high wholesale prices will lead to huge profits for the gentailers.

The Meridian Energy West Wind Farm above the cliffs of Makara Bay (Photo: Danny Rood/The Spinoff).

‘The market just blows up’

Perhaps this explains why we agonise over the profits of banks or prices at supermarkets, but electricity prices don’t seem to generate the same political fury. Electric Kiwi’s Luke Blincoe is extremely outspoken on the issue. He keeps a stable price for his customers through the use of hedge contracts, essentially rights to buy energy at a specific price. These have become so expensive he can’t buy them and still make a profit margin on any new customers. He draws a direct line between political inaction and the government as being the “single biggest beneficiary [of the situation], by way of dividends”. 

To Blincoe, “the lack of supply is a fundamental driver. New Zealand relies on a market to deliver efficient outcomes for an essential service. So if you’re going to place your bets on that, you better have a functioning market that delivers efficient outcomes. And we don’t have that, because we’ve got market power that allows the generators to really keep the supply balance tight, which keeps the market firm.” 

Blincoe says that by keeping the margin between supply and demand close, it almost guarantees huge price jumps. “When anything unexpected or abnormal happens in our hydrology or gas outlook, the market just blows up.”

Energy generation in NZ (Source: Gen Less)

According to Blincoe, the fundamental issue is that our biggest generators of electricity are also our biggest retailers of electricity. Even at very high prices, he says, “generation businesses are extracting monopoly profits out of the generation market, while cross subsidising hopelessly inefficient retail businesses.” He says the gentailers win even if their retail arms lose.

Electric Kiwi is not the only electricity retailer to have to take extreme action due to surging prices in recent years. Nau Mai Rā, which aims to help people other retailers won’t service, had to offload 500 customers in 2021. Flick spent five months refusing new connections in the second half of 2021 too. Three companies acclaimed for their innovation or customer-centric approach, all refusing new customers – surely an indication of a non-functioning market?

Is it really so simple?

Bridget Abernathy is CEO of the Electricity Retailers Association of New Zealand, which represents the major gentailers. She says the critiques, while understandable, are overblown. She characterises recent studies by the Electricity Authority, which regulates the sector, as saying that “overall, the market delivers well for consumers, that structural reforms were not justified, and any major changes to the market would increase uncertainty at a time of major transition for the energy sector, and would chill much needed investment.”

According to her, the current market design has spared households the volatility of wholesale markets. “The average household electricity bill rose about 6.5% over the last five years, and that’s in the context of a 20% increase in inflation, with cost of food up 26%, transport up 22%, and housing up 36% over the same period.”

To her, that shows that households are largely shielded from spot market volatility. Abernathy says Blincoe’s Electric Kiwi is part-owned by a British hedge fund, and could easily enter the generation market itself if it felt like the high prices warranted it. She also believes that the prices are in part a reflection of a reality that the country is in a period of enormous energy transition. 

“We’ve got a massive amount of investment required in this country between now and 2050. New Zealand’s energy sourced from electricity has got to grow from around 40% today to 60% by 2050. It’s got to be 95% renewable and available 100% of the time. These are massive investments required. And you know, it’s the gentailers which are doing the heavy lifting.”

Power users of electrical power

Given that surging prices have caused multiple major energy users to have to turn off their factories, you’d expect the Major Electricity Users Group (MEUG) to back Blincoe’s theory of our market problems. It’s true to an extent – its chair John Harbord agrees with the idea that our market design has an impact, and that hugely profitable generation businesses can end up suppressing innovation by masking losses on the retail side.

Source MBIE / Wikipedia cc

However, when asked to nominate the most important reason for staggering increases in wholesale prices, Harbord says it’s “the nature of our energy mix”. What this means is that while we’re rightly pleased with the total volume of renewable energy in our system, renewables are always supplemented by what are known as “firming” electricity sources. Currently this often means coal and gas – with gas preferred both due to its lower emissions profile and the fact we have domestic sources. 

Harbord says that the three core elements of electricity are reliability, affordability and sustainability, and that the previous five years saw an overemphasis on sustainability at the expense of the other legs of the stool. As the above chart shows, the quantity of gas in our energy mix has been falling for some years – something Harbord puts down to the previous government’s decision to ban exploration for new wells. As a result, the current government is considering importing liquified natural gas (LNG) to cope with the crunch. 

He believes the lack of domestic gas is the driver of a steady rise in the cost of wholesale electricity, from $65-80 per megawatt hour (mw/h) six years ago, to more than $300 per mw/h for months at a time this year. And because large energy users use hedging contracts which lock prices in for years into the future, elements of the current crisis will linger long after wholesale prices come down. While there is a major push to increase renewables, sometimes it’s dry, cloudy and the wind doesn’t blow, which means that you need a backup plan.

‘Media is under threat. Help save The Spinoff with an ongoing commitment to support our work.’
Duncan Greive
— Founder

Who should we believe?

The truth is that the electricity market is phenomenally complex. As Harbord says, moving electrons around a long, thin, hilly, sparsely populated pair of islands is inherently complex. It’s deeply seductive to think this could be solved with one major regulatory move. Most tantalisingly, the prospect of a breakup, like that which the Helen Clark Labour government forced on Telecom, to become Chorus and Spark. 

For his part, Blincoe believes it’s time. “Telecommunications reforms in New Zealand already provide a clear blueprint for efficient, well-targeted regulation that benefits consumers,” he says. But it carries risks too. It’s a huge measure, and both Abernathy and Harbord believe it’s a bridge too far. 

Mike Casey from Rewiring Aotearoa , who I recently saw talk about his all-electric South Island cherry farm, is beloved by everyone from Groundswell to the Greens. He believes that there is a financial case for a huge increase in roof-mounted solar connected to EV batteries, which will help meet the need for more and more electricity in future, from transport to data centres to generative AI

That’s a consumer revolution – and really could happen, over time. But for now, all eyes are on the government, the biggest winner out of high wholesale prices, but furious about them too. The next few weeks will reveal how serious it is about finally doing something about this issue – one crucial to the solve for climate change, but maddeningly complex too. 

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