Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Electricity charges below costs for many decades

28 January 2014

Electricity charges below costs for many decades

A new report from the Electricity Authority shows that electricity charges in New Zealand were far below the cost of supply for many decades, and that current charges are almost in line with the costs that have been incurred to supply electricity.

This finding is contrary to claims that consumers have been over-charged for electricity for more than 30 years and they have already paid off past investments.

The report has compiled the total cost incurred to build all of New Zealand’s electricity generation plant since 1907, as well as the other costs required to deliver electricity to consumers.

Carl Hansen, Chief Executive of the Electricity Authority, says “The results reflect the fact that, prior to the 1990s, New Zealand governments treated water as a free resource and didn’t fully account for the costs of capital, so they built very costly hydro generation plants. It is a myth that the old hydro plants were low cost for New Zealand, as they often had very high capital costs that more than offset their very low running costs. The total cost to New Zealand was often very high but consumers were not charged the full cost of supplying electricity to them.”

The analysis suggests that setting current electricity charges based on historical cost could increase prices for consumers, rather than reduce them. It would mean prices would have to rise to achieve a 10% return on historical generation investments (before taxes and after adjusting for inflation). Even at a low return on capital, such as a 6% rate, there would be little scope to reduce electricity charges for consumers.

The research also shows that historically, commercial consumers have paid a high proportion of the costs to supply them, while households paid a very low proportion until the 1990s.

Mr Hansen says historically charges to households failed to cover the cost of generation and often made no contribution to covering other costs such as distribution, transmission, retailing, metering and GST. Rises in household electricity prices since 1985 reflect efforts to gradually lift prices to the levels needed to cover the full cost of supplying electricity.

Although average costs reduced in the 1990s, they increased quite sharply from the early 2000s, mainly as a result of increasing fuel costs. More recently there have also been cost increases due to the increase to GST in 2010 and increases in transmission and distribution charges.

“Obviously, we’d all like to pay less for our electricity. The best way to sharpen up these prices is to increase the competitive pressure in the market. Everyone who purchases electricity can help encourage competition by actively seeking the best deals,” says Mr Hansen.

The historical cost report has been independently reviewed by the NZ Institute of Economic Research and is available at www.ea.govt.nz. The Electricity Authority is an independent Crown entity responsible for promoting competition, reliability and efficiency in the New Zealand electricity industry.

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Keep Digging: Seabed Ironsands Miner TransTasman Tries Again

The first company to attempt to gain a resource consent to mine ironsands from the ocean floor in New Zealand's Exclusive Economic Zone has lodged a new application containing fresh scientific and other evidence it hopes will persuade regulators after their initial application was turned down in 2014. More>>

Wool Pulled: Duvets Sold As ‘Premium Alpaca’ Mostly Sheep’s Wool

Rotorua business Budge Collection Limited (Budge) and sole director, Sun Dong Kim, were convicted and fined a total of $71,250 in Auckland District Court after each pleading guilty to four charges of misrepresenting how much alpaca fibre was in their duvets. More>>

Reserve Bank: Labour Calls For Monetary Policy To Expand Goals

Labour's comments follow a speech today by RBNZ governor Graeme Wheeler in which Wheeler sought to answer critics who variously say he should stop lowering interest rates, lower them faster, or that inflation-targeting should no longer be the primary goal of the central bank's activities. More>>

ALSO:

BSA Extension And Sunday Morning Ads: Digital Convergence Bill Captures Online Content

Broadcasting Minister Amy Adams has today announced the Government’s plans to update the Broadcasting Act to better reflect today’s converged market... The Government considered four areas as part of its review into content regulation: classification requirements, advertising restrictions, election programming and contestable funding. More>>

ALSO:

March 2017: Commerce Commission Delays Decision On Fairfax-NZME

The Commerce Commission has delayed its decision on the proposed merger between NZME and Fairfax Media's New Zealand assets, saying the deal is complex and it needs more time to assess the impact on both news content and the advertising market. More>>

ALSO:

Plan Plan: Permanent Independent Hearings Panel Proposed For Planning

The Productivity Commission recommends creating a permanent independent hearings panel like the one that cut through local politics to settle Auckland’s Unitary Plan, for the whole country. More>>

ALSO:

Statistics: NZ Jobless Rate Falls To 5.1% Under New Methodology

New Zealand's unemployment rate fell more than expected in the second quarter as Statistics New Zealand adopted a new way of measuring the labour market to bring the country in line with international practices, and while a growing economy continued to support jobs growth. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news