Electricity price options paper out this week

Monday, 18 February 2019, 11:31 am
Article: NZ Energy and Environment Business Week

This article was originally published in the February 14 edition of Energy and Environment and has had minor edits

The Electricity Price Review is to release its options paper this week.

In a letter to stakeholders, the Chair Miriam Dean said the 39 page paper would set out possible ways to address problems discussed in the Panel’s first report.

“Some are high-level only and deliberately so: as preliminary views, they are subject to testing and refinement as we engage with you in the final phase of our review… In each case, we give our preliminary view on whether we favour, do not favour or are undecided about the option in question.”

All the options were subject to engagement and feedback.

There would be a series of meetings and likely three workshops, each covering the broad themes of consumer interests, the industry, and regulation.

“We intend to invite a wide range of submitters and stakeholders to these workshops because we want a variety of perspectives represented in the discussions. Tentative dates for the workshops are 12 and 13 March. Invitations will be sent out shortly. Unfortunately, we need to limit numbers attending so we can have meaningful discussions. We will do our best, however, to get a representative cross-section of stakeholders.”

Written submissions would also be invited with a deadline of March 22 ahead of preparing of final recommendations, which will go to the Minister of Energy and Resources by mid-2019.

The Panel’s preliminary conclusions were the sector generally worked well in providing a reliable and mainly renewable source of power, and was in a relatively good position to deal with future challenges.

However, the Panel highlighted rising power bills had left more than 10% in a position of “energy hardship” and many more stretched. They also focussed on the disparities between household rates in comparison to businesses and industrial users, indicating this needed to be equalised in some way.

The panel said retail competition was working well for some, but a two tier system has emerged. The average gap between the cheapest retailer’s price and the incumbent retailer’s price has increased by about 50% since 2002. This was mainly due to a large block of people never switching. Pricing and contract options were not clear in many cases and many missed out on prompt-payment discounts and were excessively penalised for this.

The Panel said there were no obvious signs of excessive profits from any of the sectors players, though there were riders around available information. Deep in the report it also pointed out: “In the 12 months to June 2017, payments by consumers to electricity suppliers totalled $8.8 billion, of which $3.6 billion was paid by residential consumers and $5.2 billion by industrial, commercial and agricultural consumers. The Crown was paid 19% of that total, or $1.7 billion, as company tax, dividends and GST.”

There are important points that follow from these conclusions. If the overall level of profits being taken from the sector is not unfair, but the bills being faced by households is unfair it is a matter of how prices are allocated. Also, there are the Panel’s concerns about generators’ ability to exercise market power when supply is tight.

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