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Powershop worried by compensation scheme

Thursday 3rd March 2011

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Small electricity retailer Powershop has hit out at a scheme that will require power companies to pay customers $10.50 a week during any future public electricity saving campaigns.

The customer compensation scheme (CCS) was likely to deter new retailers from entering the market and drive prices up, Powershop chief executive Ari Sargent said.

Details of the scheme, to be included in the electricity industry participation code from April 1, were announced today by the Electricity Authority.

The CCS is the first priority initiative to be implemented by the authority from the Electricity Industry Act 2010

It sought to improve security of supply by removing incentives retailers had to call for electricity compensation campaigns to reduce their exposure to high spot market prices, the authority said.

Those high prices were encountered when hydro storage levels fell to low levels, such as during the onset of dry winter conditions.

In the past decade there had been three public conservation campaigns.

"The CCS has been introduced to encourage electricity retailers to more actively use commercial arrangements to manage dry year risks, rather than rely on free savings from consumers as appears to have occurred in the past," the authority said.

The default CCS would apply to residential and small business customers, while excluding low consumption sites such as farm sheds and holiday homes. It also left out higher consumption commercial and industrial customers who were better able to manage tight supply situations directly with retailers.

Sargent said there had already been evidence, with a sharp rise in wholesale energy prices last December following predictions of an El Nino weather pattern, that the proposal would drive up wholesale electricity prices. Those increases would eventually be passed onto customers.

For a smaller retailer such as Powershop, with about 25,000 customers and no generation business, the scheme would mean shelling out $2 million for an eight week conservation campaign, Sargent said.

"As a low-margin business this would significantly and negatively impact us, and would almost certainly deter new entrant retailers."

 

NZPA



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