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

 

Economic Update: RBNZ Says Rate Cut Seems Likely

The Reserve Bank will likely cut interest rates further as a persistently strong kiwi dollar makes it difficult for the bank to meet its inflation target, it said. The local currency fell. More>>

ALSO:

House Price Action Plan: RBNZ Signals National Lending Restrictions

The central bank wants to cap bank lending to property investors with a deposit of less than 40 percent at 5 percent and restore the 10 percent limit for owner-occupiers wanting to take out a mortgage with a deposit of less than 20 percent, according to a consultation paper released today. More>>

ALSO:

Sparks Fly: Gordon Campbell On China Steel Dumping Allegations

No doubt, officials on the China desk at MFAT have prided themselves on fashioning a niche position for New Zealand right in between the US and China – and leveraging off both of them! Well, as the Aussies would say, of MFAT: tell ‘em they’re dreaming. More>>

ALSO:

Loan Sharks: Finance Companies Found Guilty Of Breaching Fair Trading Act

Finance companies Budget Loans and Evolution Finance, run by former 1980s corporate high-flyer Allan Hawkins, have been found guilty of 106 charges of breaching the Fair Trading Act for misleading 21 borrowers while enforcing loan contracts. More>>

ALSO:

Post Panama Papers: Govt To Adopt Shewan's Foreign Trust Recommendations

The government will adopt all of the recommendations from former PwC chairman John Shewan to increase disclosure and introduce a register for foreign trusts with new legislation to be introduced next month. More>>

ALSO:

The Price Of Cheese: Cheddar At Eight-Year Low

Food prices decreased 0.5 percent in the year to June 2016, influenced by lower grocery food prices (down 2.3 percent), Statistics New Zealand said today. Compared with June 2015, cheese prices were down 9.5 percent, fresh milk was down 3.9 percent, and yoghurt was down 9.2 percent. More>>

ALSO:

Financial Advisers: New 'Customer-First' Obligations

Goldsmith plans to do away with the current adviser designations which he says have been "unsatisfactory" in that some advisers are obliged to disclose potential conflicts of interest and act in their customers' best interests, but others are not. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news