Price drop puts power company plans in the spotlight

ROB O'NEILL
Last updated 05:00 04/11/2012

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Electricty prices are on the way down for the first time in years - and substantially down according to data from the Australian Securities Exchange (ASX).

New Zealand wholesale electricity prices for 2013 to 2015, traded on the ASX, have fallen nearly 15 per cent since June, reflecting expectations of flat demand and growing supply from new power plants.

The prediction of a price fall comes as some power retailers are marketing fixed price contracts. Consumer NZ has warned consumers about fixed-price deals - that often charge a premium at the start and feature expensive break fees - even before the forward price of power started to fall.

Mercury Energy, which claims to have signed more than 85,000 customers to its three-year fixed-price deal, is marketing its contract as "Get Your Fix".

"Whether it's groceries, petrol, clothes, childcare or your power costs - it seems affording the necessities are getting almost out of reach..." the retailer says on its website.

"Over the past three years energy prices in Auckland have steadily crept up and continue to do so. According to the Ministry of Economic Development, the average household in Auckland has seen a 19 per cent increase in their annual power bills. Whoa Nellie, that's some scary stuff!"

The company said its plan, which includes a $150 break fee, would eliminate "nasty surprises".

Mercury has also promoted the plan on morning TV, emphasising historical price increases. There is no mention on the website of more recent wholesale falls on the ASX.

A Mercury Energy spokesperson said wholesale market predictions were uncertain and unrelated to retail pricing.

That's because most retail customers are protected from fluctuations in the wholesale market by hedging arrangements taken out by the retailers, with the exception of some larger commercial customers. So, even if the wholesale market falls, that won't necessarily be passed on.

"It's hard to predict what will happen to retail pricing between now and 2015, as there are many variables to consider: retail prices are influenced by operational costs incurred by the company, market dynamics and any change to costs passed through from transmission and lines companies - which makes up approximately 40 per cent of a customer's monthly bill," Mercury Energy said.

Last year, Transpower's transmission charges to Vector's network in Auckland increased by about 25 per cent.

But Powershop chief executive Ari Sargent said some retailers will be taking the true cost of electricity through the wholesale market and will be able to pass that on.

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"If there's a silver lining anywhere for consumers from the recession, it's stable or falling wholesale energy prices. But you won't benefit from these lower prices if you lock yourself into a fixed-price contract," he said.

Sargent conceded prices were uncertain and there was no guarantee they would drop.

"What we are saying is, before signing up, consumers should be sure they know what they are signing up to," he said.

Consumers are advised to read the fine print in such contracts. For example, Mercury Energy's terms specify that the fixed-price contract will automatically renew once the company has sent a notice of any price changes at the end of the term if the customer does not opt out in writing.

Powershop, which encourages customers to compare plans and shop around for energy deals, is owned by Meridian Energy, while Mercury Energy is owned by Mighty River Power.

In its annual report, Mighty River Power said locking people into the three-year contract had cut customer turnover or "churn".

- © Fairfax NZ News

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