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Electricity pricing reports released

Tuesday, 27 January 2004 Media Statement

Electricity pricing reports released

Electricity retailers appear to be collecting about the same margin between retail and wholesale prices as they did before the industry reforms of the late 1990s, says an officials' report released by Energy Minister Pete Hodgson today.

The report analyses electricity price movements over the past decade and concludes there is no clear evidence of a "step change" in profit margins for retailers.

It says recent increases in electricity retail prices can be related to increases in the cost of new generation, as cheap Maui gas supplies run down and generators anticipate more expensive gas and new hydro, wind and geothermal options.

The report also notes a slow improvement in the level of retail competition, with consumers gradually switching from incumbent retailers to alternative suppliers.

"Keeping a close watch on the pricing behaviour of the electricity industry is an important part of the government's approach to energy policy," Mr Hodgson said.

"The conclusions in this report are necessarily tentative, but should usefully inform debate about the fairness of electricity prices. The analysis is reassuring, as far as it goes, with no evidence of price gouging coming through. Competition is essential for fair prices and the improvement in that area must continue. The recently established Electricity Commission will be pursuing a number of important initiatives to encourage this."

A second report examines Contact Energy's pricing in the Invercargill area as a case study, following community reaction to recent price increases.

The report finds that Contact has passed on cost increases, that its current domestic tariff appears to give a return at the middle to high end of a reasonable range, and that it is losing market share as customers switch to other retailers.

Attached: "Electricity Prices and Retail Competition" and "Contact Energy Pricing in the Invercargill Area", reports to the minister from the Ministry of Economic Development.

Electricity Prices and Retail Competition - Report
Contact Energy Pricing in the Invercargill Area

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