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

 

Auckland Surge, Possible Peak: House Values Accelerate At Fastest Annual Pace In 8 Years

New Zealand residential property values rose at their fastest annual pace in eight years in August, pushed higher by overflowing demand in Auckland, which is showing signs speculators think it has reached its peak, according to Quotable Value. More>>

ALSO:

Cash Money: Reserve Bank Launches New $5 And $10 Banknotes

The $5 and $10 final banknotes were revealed at an event at the Bank in Wellington, and will start to be released from mid-October 2015. More>>

ALSO:

Truck Sales Booted: Commerce Commission Files Charges Against Mobile Trader

The Commerce Commission has filed charges against a mobile trader, or truck shop operator, claiming he obtained money from customers by deception and never intended to supply them with the goods they paid for. More>>

ALSO:

Planes: Jetstar Launches Regional Network

Jetstar, the Qantas Airways budget offshoot, launched its new regional network in New Zealand with special $9 one-way fares and has narrowed down its choices to five routes and four destinations - Nelson, Napier, New Plymouth, and Palmerston North. More>>

ALSO:

Fisheries: Report On Underrsize Snapper Catch

The report found that commercial fishers caught 144 tonnes of undersized snapper in the Snapper 1 area – about 3% of the total commercial catch – in the year ending February 2015. The area stretches from the top of the North Island to the Bay of Plenty and is one of New Zealand’s most important fisheries. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news