Power bills 'lower than they should be'

JAMES WEIR
Last updated 13:30 28/01/2014
Lake Benmore
JOHN BISSET/Fairfax NZ

CHEAP POWER, HIGH COST: "It is a myth that the old hydro plants were low cost for New Zealand, as they often had very high capital costs that more than offset their low running costs."

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Electricity charges have been far below the cost of supply for many decades, with households getting a cheap deal in the past, the Electricity Authority says.

Charges are now almost in line with the costs of supplying power, a report by the authority shows.

The findings are at odds with claims last year that consumers had been overcharged for power for more than 30 years and they had already paid off past investments.

In a book, Evolution of Global Electricity Markets, published last year Victoria University researcher Geoff Bertram said New Zealand's power prices were now more than twice what they had been 30 years ago, in real terms.

New Zealand customers were being ripped off because there was no regulator controlling prices. They had paid much more than consumers in Australia, he said last year.

The authority's report out today compiled the total costs of building all New Zealand's power generation plant since 1907, and other costs to deliver power to consumers, such as powerlines, the national grid, retail costs and GST.

Authority chief executive Carl Hansen said the report showed that before 1990, governments treated water as a free resource and didn't fully account for the costs of capital spending.

"So they built very costly hydro-generation plants," he said today.

"It is a myth that the old hydro plants were low cost for New Zealand, as they often had very high capital costs that more than offset their low running costs."

The total cost was often high but consumers were not fully charged the full costs of supply power to them.

The report suggests that setting electricity charges based on historic costs could increase prices to consumers, rather than reduce them.

Prices would need to rise to reach a 10 per cent return on historic power generation, before taxes and after adjusting for inflation.

Even assuming a low 6 per cent return on capital, there would be "little scope" to reduce electricity charges.

In the past, commercial consumers paid a high proportion of the costs of supplying power to them, while households "paid a very low proportion until the 1990s".

Early last year, Labour and the Green Party proposed setting up a state-owned company, NZ Power, to buy electricity so it would be cheaper for consumers. They have promised to knock between $230 and $330 a year off each household's power bill.

Labour said the plan would save up to $750 million a year on power bills.

The move has come under heavy attacks from National and large parts of the business community.

Led by Business New Zealand chief executive Phil O'Reilly, several business groups last year said subsidising electricity would ultimately harm employment, hurt business confidence and could push up interest rates.

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- BusinessDay.co.nz

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