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Comparing household power price increases

Comparing what household power prices would increase if they had the prices faced by wholesale power users’

”If households had a five fold increase in the energy component of their monthly power bill, they would be paying $250 per month instead of $80 per month,” said Ralph Matthes, Executive Director of the Major Electricity Users’ Group (MEUG).

“An average household pays approximately $80 per month for their electricity – about half of that is for the local distribution and national grid transport or line charges, and the balance is for the electrical energy. Wholesale users’ of power have this month had spot prices that are between 5 to 6 times average prices, ie from about 5 c/kWh usually rising to between 25 to over 30 c/kWh averaged over a day. Households average energy charges are 7 c/kWh.

“If the energy component of an average households monthly power bill were to increase five fold from 7 c/kWh to 35 c/kWh the energy charges would increase from $42/month to $212/month and the total power bill including line charges would therefore rise from $80 to $250 per month.

“Householders don’t immediately see volatile changes in spot prices partly because they pay a premium for certainty (this explains partly why householders average energy price is 7 c/kWh and non-residential is less, the other reason being different load factors during the day, ie households use more power at peak times whereas industry uses relatively more power at non-peak times). In the long run household tariff prices will tend to follow the overall trend of spot price movements.

“In our view the market power of the existing vertically integrated suppliers provides very weak incentives to develop innovative risk management products to better balance competition for fixed price variable volume consumers (ie households) with products for larger consumers. This results in large wholesale users’ becoming the default slack forced to drop demand when spot prices rise. If the market were functioning better the share of risk between large and small users’ would be more efficient. Until the market is better able to manage dry year risk, the Government must appeal to all classes of consumer to conserve energy when spot prices such as those seen this month signal an impending supply shortfall,” concluded Mr Matthes.

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