Power bills 'gouging' as prices fall

JASON KRUPP
Last updated 05:00 25/02/2013

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Consumers will have to wait for at least a year before power prices drop, despite wholesale prices falling to the lowest level in years, a practice one energy analyst called price gouging.

Domestic Energy Users Network lobbyist Molly Melhuish said consumers patiently accepted higher power prices in recent years as power firms expanded their generation capacity, but now overcapacity and full hydro lakes had pushed prices sharply lower.

According to Electricity Authority figures, the wholesale electricity price was recently trading at $73 per megawatt hour, well short of the $131/MWh seen at the same time last year. However, the benefit of this power glut is not being seen on power bills.

Melhuish noted Mighty River Power had raised retail prices by 2 per cent over the last six months even as power purchase costs dropped by 22 per cent over the same period. She called the practice a "price gouging of captive consumers".

Those increases have come on top of the Commerce Commission's electricity cost resets, where 13 of the country's 16 power distributors were ordered to lift their prices.

Under those changes, Mighty River Power's retail arm, Mercury Energy, recently announced it will increase prices in Christchurch by 7.7 per cent from the spring.

That follows similar hikes from the firm in Wellington (up 3.3 per cent) and Dunedin (up 1.1 per cent), while costs in Auckland fell (down 1.4 per cent).

Prices are also set to come under further pressure as lines company TransPower continues to pass on costs of upgrading its ageing national infrastructure to retailers, and eventually customers.

The government-owned lines monopoly is expected to lift its prices 10 per cent this year, with the pass-through costs having already risen by 15 per cent last year.

The industry says the picture is not as simple as it looks.

Electricity Authority chief executive Carl Hansen warned against linking retail prices and wholesale prices, saying retailers generally buy electricity on futures contracts, often as far out as 12 months to 36 months.

Thus, current prices are largely a reflection of retailers' pricing bets when the futures contract was bought, and low wholesale market prices will factor into lower prices down the road.

For example, electricity futures have fallen by about 25 per cent in value from July 2012 to late January.

"Over the next 12 to 18 months we'll see how competitive the market gets," Hansen said.

A Mighty River Power spokesperson said the contracts also isolate consumers from sharp spikes in the wholesale market "which goes up as well as down".

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Ari Sargent, head of Meridian subsidiary Powershop, said consumers also needed to bear in mind that power prices only made up about 38 per cent of a typical electricity bill, and any reduction in input costs was likely to be muted by lines charges and higher retail operating costs.

"One of the consequences of [the EA's What's My Number campaign] is higher sales and marketing and customers retention costs," Sargent said.

He is also cautious on the electricity price path, with the outlook potentially skewed by high hydro lake levels which could be "a washout over time".

The other factor he'll be watching is demand, with increased commercial usage as the economy picks up steam likely to push electricity prices higher. That demand isn't expected to kick in any time soon, according to Auckland electricity distributor Vector.

In its interim results announcement last week, chief executive Simon McKenzie said manufacturing activity (excluding housing construction) in the city looked set to remain in the doldrums for the foreseeable future.

- © Fairfax NZ News

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