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Consumers can protect their own interests

Thursday, 8th December 2005

Major Electricity Users’ Group (MEUG)

Electricity consumers can protect their own interests

“Consumers are becoming increasingly concerned about the current high electricity prices”, said the Chair of the Major Electricity Users’ Group Terrence Currie.

“Very low hydro inflows this year and concerns by generators about fuel costs next year have driven current spot prices and forward prices for next year well above the underlying rate that underpins existing retail contracts for households and commercial customers”.

“However the Electricity Commission advise there is almost no risk of blackouts next year so it is difficult to understand why prices are so high today, stated Mr Currie.

“Large electricity intensive industry and commercial users exposed to the spot market have already felt the bite of high prices. Anecdotal reports indicate demand reductions in excess of 2% from that sector as a whole have already been made. High spot prices feed quickly into higher hedge prices for those consumers. The electricity pricing fiascos of 2001 and 2003 damaged the credibility of New Zealand as a country to invest in and major customers are looking at ways to mitigate the impact of the current prices.

“If it rained, the lakes replenished closer to average levels for this time of year and suppliers re-assessed their own risk for next year as less extreme, then spot prices and forward prices would decrease and retail price increases might be averted.

It appears to MEUG that the prevailing attitude among policy makers is “to pray for rain” and that no other initiatives are being contemplated.

“However in MEUG’s view there is also another short-term option whereby all households and commercial customers initiate any quick and easy conservation savings. By saving demand now we will conserve lake storage, reduce the risk assessed by suppliers next year and therefore help lower current spot and forward prices that will lead into future retail price rises.

“Based on historical records for the last 74 years it is highly likely that we will have some heavy rain in the Southern Lakes. Nevertheless we believe it is in the interest of the economy as a whole that all electricity customers and households use electricity wisely and if possible make any quick and easy conservation savings.

“Large power users are highly incentivised to use power efficiently because of the immediate price impacts through spot prices and the effect on hedge contracts. As well as some demand reductions other large power users have switched to alternative fuels or increased on site generation.”
In concluding Mr Currie observed that It does appear to MEUG that the

Electricity Commission is faced with conflicting tasks of keeping downward pressure on electricity prices while being prevented from undertaking any conservation activities until the storage levels are in serious crisis. It is not clear to consumers that their interests are treated as paramount.


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