Electricity Authority says prices blame game "unacceptable"

Thursday 6th March 2014 1 Comment

The Electricity Authority will investigate contradictory pricing claims in the sector, saying it is "unacceptable" for energy retailers to blame other parts of the sector for price hikes.

Both Genesis Energy and Contact Energy have announced price increases from April to offset increased costs from higher transmission and distribution fees. However lines and distribution companies say the new prices exceed the additional costs imposed on consumers.

In one case, network provider Wellington Electricity has said it expects the impact of its price increase on the average customer to be around 4 percent. Wellington Genesis customers have been told prices will rise 5.8 percent, while Contact said it expects a 7 percent price increase in the region. Contact said network and transmission costs make up 40 percent of a customer's bill.

The Electricity Authority said it is working to improve the quality of retail price information available, and it would be investigating the contradictory claims made by the different parts of the electricity sector.

"It is unacceptable that different parts of the electricity industry blame each other for price increases," EA chief executive Carl Hansen said. "Our role as an independent regulator is to promote the long-term interests of electricity consumers, and this starts with consumers being given the facts about matters of significant interest to them."

State-owned Genesis, which is preparing to be partially privatised next month, expected an average increase of 3.6 percent nationally, while Contact expected to pass on an average increase of 2.6 percent nationwide.

The Electricity Authority's investigation comes after it said earlier this year that energy companies were absorbing nearly twice as much new costs as they were passing on to customers because of increased competition in the market. Analysis from the industry regulator said costs facing a theoretical stand-alone retailer had risen faster than residential prices since September 2010, when its pro-competition agenda started to get into full swing.

At the time, Hansen said that it was a "myth" New Zealanders had been paying too much for energy prices over the past 30 years.

During the Contact's first-half earnings presentation last month, chief executive Dennis Barnes said lines companies are stifling power company innovation.

"One of the biggest inhibitors to that innovation is how the network companies are structured and how they structure their tariffs," Barnes said at a media briefing in February. "There are 29 network companies with many thousands of different network tariffs.

"Remember that network charges about half the bill. We are only about one-third of the retail electricity bill. If those network tariffs are not adjusted in the same way, then it's very difficult for one-third of the bill to drive a behaviour change."

The Electricity Networks Association, which represents the country's 29 distribution companies, refuted Contact's claims, saying independent analysis by PwC showed combined generator-retailer portion of a typical domestic bill was 52 percent and that Contact was misrepresenting the situation to draw attention away from its profits.

"It seems a pretty blatant attempt to obscure a hefty profit lift by Contact when electricity prices are such a sensitive issue for companies like his," said Ken Sutherland the association's chairman.

In late February the Commerce Commission ruled that state-owned national grid provider, Transpower, would be required to publicly disclose information about its pricing and network management. Under the new requirements Transpower must also disclose information about its investment, innovation and financial performance.

Labour Party energy spokesperson David Shearer yesterday announced a draft Private Members Bill which will require companies to clearly separate the components and costs of a consumer's bill.

The Opposition Labour and Green parties want to create a single, state-owned power buyer and a restructured pricing model, to eliminate excessive power company profits and pass savings onto consumers through cheaper electricity prices.

BusinessDesk.co.nz

Comments from our readers

On 7 March 2014 at 10:46 am Ivan said:

Re-regulate now. They're out of control. Their problem.. greed.