Commerce Commission moves to constrain power profits

JAMES WEIR
Last updated 05:00 23/07/2014

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In a small victory against the tide of ever-rising electricity prices, nationwide bills could be cut by about $33 million a year, as the Government's monopoly watchdog the Commerce Commission looks to "constrain excessive profits" made by power lines and gas lines companies.

For people who have seen power bills jump as much as 6.8 per cent this year, the savings will be cold comfort - they will only be worth about $10 a household a year.

However over five years, the national annual savings could be worth up to $160m, dialling back the acceptable level of returns that can be made by state-owned grid company Transpower, as well as foreign-owned Wellington Electricity, and Auckland-based and sharemarket listed Vector.

Retail electricity prices have about doubled since early 2000 and for some consumers in Wellington prices jumped almost 7 per cent earlier this year, equal to about $200 a year, with retail power companies pointing the finger at lines company Wellington Electricity.

Yesterday the Commerce Commission said its draft decision on allowable returns for power and gas lines companies would cut consumers' bills by about $33m a year and "constrain excessive profits".

Regulated businesses subject to price-quality paths would see their rate of return reduce by about 24 to 28 basis points a year, the commission said, in an effort to "strike the right balance to ensure on-going investment while constraining excessive profits".

Consumer NZ chief executive Sue Chetwin said the decision was "most definitely" a victory for consumers. "It basically means lines companies can't make as big a profit, as they could have."

Consumer NZ had been involved in a group which had sought the review of returns made by lines companies. "So this is really good news, as long as the proposal becomes more than a proposal," Chetwin said.

The lines companies companies' charges make up 30 per cent to 40 per cent of a household bill. This year, prices had gone up and electricity retailers had blamed lines for their cost increase. "This decision means lines companies will still be able to increase prices but not as much, to fund their capital projects," Chetwin said.

Consumers were "perplexed" Ralph Matthes, executive director of the Major Electricity Users Group, which also sought the Commerce Commission review of lines company returns, said the draft decision yesterday was "moving in the right way".

"It has been an excessive rate of return they (lines companies) have been earning," Matthes said.

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