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

 

Housing Policy: Auckland Densification As Popular As Ebola, English Says

Finance Minister Bill English said calls by the Reserve Bank Governor for more densification in Auckland’s housing were “about as popular in parts of Auckland as Ebola” would be. More>>

ALSO:

Crown Accounts: NZ Government Deficit Smaller Than Expected In First Half

The New Zealand government's operating deficit was smaller than expected in the first six months of the financial year, as the consumption and corporate tax take rose ahead of forecast in December, having lagged estimates in previous months. More>>

ALSO:

Fruit & Veg Crackdown: Auckland Fruit Fly Find Under Investigation

The Ministry for Primary Industries (MPI) is investigating a find of a single male Queensland fruit fly in a surveillance trap in the Auckland suburb of Grey Lynn... MPI has placed legal controls on the movement of fruit and some vegetables outside of a defined circular area which extends 1.5km from where the fly was trapped in Grey Lynn. More>>

ALSO:

Scoop Business: Westpac NZ Reaches $2.97M Swaps Settlement

Westpac Banking Corp’s New Zealand unit has agreed to pay $2.97 million in a settlement with the Commerce Commission over the way the bank sold interest rate swaps to farmers between 2005 and 2012. More>>

ALSO:

Going Dutch: Fonterra Kicks Off $144M Partnership With Dutch Cheese Maker

Fonterra Co-operative Group, the world’s largest dairy exporter, has commissioned a new dairy ingredients plant in Heerenveen, in the north of the Netherlands, its first wholly-owned and operated ingredients plant in Europe. More>>

ALSO:

Scoop Business: NZ Retail Sales Beat Estimates

New Zealand retail sales rose more than expected in the fourth quarter, led by vehicle-related transactions, food and beverages, adding to evidence that cheap credit and a growing jobs market are encouraging consumers to spend. More>>

ALSO:

Delivery Cuts Go Ahead: 'Government Money Grab' From NZ Post

"It's a money grab by the Government as the shareholder of New Zealand Post" says Postal Workers Union advocate Graeme Clarke about the changes announced by NZ Post. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news