Electricity Charges Claims Must Be Considered

Major Electricity Users’ Group (MEUG)

Claims Of Decreases In Electricity Distribution Charges Need To Be Considered Cautiously

“The recently published report by Cap Gemini Ernst & Young “New Zealand Electricity Distribution Company Analysis – 2000 Information Disclosure states average distribution charges reduced by about 2% between the years ending 31 March 1999 and 31 March 2000, and after an assessment of missing data, the reduction is estimated at about 5% in real terms” noted Ralph Matthes, Executive Director of the Major Electricity Users’ Group.

“The report explains that this result is not based on publicly disclosed information, but from Cap Gemini Ernst & Young’s assessment of missing data. The missing data problem arises because information for distribution companies acquired by other line companies during 1998/99 was not available. Another problem with the data is that some information released in 1998/99 was incorrectly allocated for example understating revenues and overstating costs. The result is that assessing changes in aggregate distribution costs is difficult, hence caution needs to be exercised in accepting the claimed 5% reduction in real terms in distribution charges. It is an unfortunate reality that the simple comparison between line company revenue in 1998/99 compared with line company revenue 1999/00 is not available. This means that claims of good behaviour become highly questionable and the results reported by Cap Gemini Ernst & Young cannot be replicated using audited and public information.

“A better picture of whether line charges have decreased or increased is to examine individual line company distribution revenues (net of Transpower charges passed through and all other non line charge revenue) where there have been no acquisitions . Using the information in Cap Gemini Ernst & Young’s reports these show the following significant increases in distribution charges:
Line monopoly 1998/99 Distribution charges 1999/00 Distribution charges Increase in charges paid by consumers Percentage Increase in charges paid by consumers
Orion $89.9m $97.8m +$7.9m +9%
Northpower $13.3m $16.6m +3.2m +25%
Eastland $11.5m $14.3m +$2.8m +24%
Top Energy $8.5m $11.0m +$2.5m +29%
Marlborough Lines $7.9m $9.7m +1.8m +23%
.“The above is a sample only and it should be acknowledged that some distribution companies decreased distribution charges over the same period.

“One explanation for these increases in distribution charge revenues is that energy volumes transported increased, which along with no or little change in line tariffs, meant line companies made windfall increases in revenue. It appears some monopolies passed this windfall back to consumers and others did not.

“Care also needs to be taken in accepting the claim of an average 5% reduction in distribution charges because it has been calculated on a unit cost basis (c/kWh), therefore given no change in charges the effect of rising energy volumes would decrease unit rates in any case.

“Therefore the claim of an average 5% reduction in distribution charges needs to be tempered by the validity of any assessment of “missing data”, the significant increases in monopoly line charge revenue by some individual companies whereas other monopolies managed to lower aggregate revenues and the effect of increasing volumes reducing reported unit costs” concluded Mr Matthes.

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