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Consumers Paid 8% More For Line Company Charges

Contact: Ralph Matthes, (04) 385 2945

Statistics Show Consumers Paid 8% More For Electricity Line Company Charges

“Electricity line monopoly charges rose 8% between the year ending 30 March 1999 and 30 March 2000 according to statistics just released by the Ministry of Economic Development” noted Ralph Matthes, Executive Director of the Major Electricity Users’ Group (MEUG). The statistics were released on Wednesday by the Ministry in their publication “New Zealand Energy Data File, January 2001.” Line monopoly charges refers to the sum of Transpower’s transmission charges and distribution charges by the 28 local Distribution companies.

“In 1998/99 total monopoly line charges paid by consumers were $1.299 billion . In 1999/00 charges were $1.402 billion. Consumers therefore paid an additional $103 million to the line monopolies. MEUG and others have consistently argued that the electricity line monopolies are out of control because they can unilaterally increase prices – the Ministry’s statistics confirm this is indeed the case.

“The Ministerial Inquiry into the Electricity Industry last year recommended in essence a continuation of the extremely light handed regulatory framework we currently have. MEUG and others wanted a more reasonable level of regulation to ensure line monopolies had strong incentives to be efficient, that consumers benefited from efficiency gains and to mitigate against line charges continuing to be spiral upwards at the discretion of those companies. Unfortunately the Inquiry did not have the benefit of the statistics just released, otherwise they too may have more clearly recognised the problem consumers have with their monopoly line suppliers – a problem that cost consumers $103 million last year in increased charges.

“The Inquiry’s recommendations regarding line monopolies have now been translated into the Electricity Industry Bill before Parliament. We believe re-consideration of the weak regulatory framework for lines companies contained in the Electricity Industry Bill must be reviewed in light of these latest statistics from the Ministry.

“The Electricity Industry Bill prescribes that the Commerce Commission must use targeted price control should line monopolies breach pre-defined thresholds. Nowhere in the world is this type of regulation used and indeed nobody in New Zealand can explain how it is to be implemented. MEUG and others believe that the Commerce Commission should be directed to consider all forms of price control. In particular it is not apparent why the Bill does not require the Commerce Commission to at least consider incentive regulation as practiced and well proven in almost all of the OECD (ie CPI-X type regulation). In effect the Bill in choosing an undefined and unproven “targeted price control” option is taking a very large gamble. Consumers do not want to take that gamble, instead we want the Commission to consider all options including universal incentive regulation based on CPI-X.

“There are three other points worth noting. First, Transpower have consistently claimed their charges have been decreasing. If Transpower is correct, then on average distribution line charges must have increased by over 8% between 1998/99 and 1999/00.

“Second, the widely reported claims by Cap Gemini Ernst & Young in their report “New Zealand Electricity Distribution Company Analysis – 2000 Information Disclosure that average distribution charges reduced appears to be entirely contradictory to the Ministry’s report.

“Third, in aggregate energy costs paid by consumers, that is for the cost of generation and retailer costs including margins, actually decreased. While for different classes of consumers energy related charges may have varied widely, the statistics clearly show that monopoly charges are out of control, not energy charges.

“Consumers have long held the view that they are not getting a fair deal from their line monopoly suppliers. The latest statistics showing line revenues increased by 8%, or $103 million last year, confirms that belief,” concluded Mr Matthes.

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