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Report on distribution pricing methodologies

Monday, 12th December 2005 For Immediate release

Media release by the Major Electricity Users’ Group (MEUG)

Report on electricity distribution pricing methodologies released

“The 28 electricity distribution companies have largely failed to disclose details of their pricing methodologies as required by regulation,” said the Executive Director of the Major Electricity Users’ Group (MEUG) Ralph Matthes.

“In a sample of 3 companies, detailed pricing methodologies show wide differences in approach. These results are detailed in a report by Smart Power for MEUG titled, “Distribution Line Companies Pricing Methodologies.” For the 3 sample line companies (Vector, Orion and Network Tasman) a representative commercial customer (a supermarket) would have distribution charges that varied by 77% depending on their location and allocation of local network losses that varied by 91%.

“Lack of transparency and varied approaches to distribution pricing inhibit by-pass and innovation by retailers and consumers to reduce line charges. Retailers face high transaction costs managing the various pricing methodologies. This raises costs that are passed through to end consumers and becomes a barrier to new entrant retailers.

End consumers pay $1.1 billion per annum for distribution charges (1). The regulatory environment has improved since the introduction of the threshold regime in 2001 so consumers are no longer subject to ad hoc and unjustified increases to aggregate line revenues. The Smart Power report points to the next challenge for regulators to ensure aggregate revenues are transparently allocated into efficient and consistent tariffs,” concluded Mr Matthes.

ENDS

(1) Refer PricewaterhouseCoopers, Electricity Line Business 2005 Information Disclosure Compendium, October 2005, p14, total distribution revenue for year ended 31 March 2005 net of transmission charges

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