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MPs voice concern about power prices and affordability

MPs voice concern about power prices and affordability

First published in Energy and Environment on April 11, 2019.

MPs have once again sent a message to the electricity sector that they are not happy with power prices. This is a warning the political phase of the Electricity Price Review is yet to begin.

The Transport and Infrastructure Committee’s annual review of the Electricity Authority notes the Electricity Price Review highlighting its recommendations for improving electricity prices to make them “fair and affordable, not just efficient and competitive”.

The select committee report also noted increased retail competition. “While welcoming these developments, we noted that electricity costs are still relatively high, particularly during the winter season, and we remain concerned about the affordability of electricity for many households. We know that people are struggling to pay their electricity bills, which is why the Government has introduced a winter energy payment.”

Most of the sector has taken a positive attitude towards most of the options put up by the review, particularly its work on defining hardship and consumer input. The reasoning of some has been that unaffordability is down to low incomes and that is the Government’s problems to solve. The select committee’s report is a reminder that in the end the decisions will be made by politicians. While they are unlikely to ignore the thrust of the Review Panel’s work, they could also take a different view on affordability and what is to blame for this.

The committee said it heard increasing competition meant that the energy component of power prices has stabilised. However, the EA noted the distribution component has continued to rise, at least until recently.

“The authority pointed out that electricity costs make up less of an average household’s expenditure now (at just over 3%) than in the past (4%) ... However, it acknowledged that households’ incomes and energy needs vary greatly, and that other factors apart from the cost of electricity affect affordability for households.”

MPs cited the EA saying the average futures price for 2022 is now $80MWh, compared with recent long-term prices in the low 70s, “so prices are expected to rise, but not as dramatically as short-term prices, which remained over $150MWh. Part of this predicted price increase is because of recent forecasts that demand for electricity could double as NZ focuses on lowering carbon emissions. The authority said it thinks competition will restrain increases in residential and business pricing. In its view the key issue for future pricing is how the market will respond to expectations of future demand, and whether it will build more generation capacity.”

The committee voiced strong concern about the long delays in the transmission pricing methodology review saying problems with transmission pricing appear to be what has kept electricity prices up, despite reductions in the energy component. “We also believe that the delay is hindering innovations with distributed energy, and mean that consumers in Auckland are effectively being subsidised by those in the South Island.”

The authority agreed that the delays were unfortunate, but said the TPM is a challenging and contested issue, because of the amount of money at stake. The authority said it is aware of the risk of price shocks in some areas and had previously suggested a cap.

The authority said it has not finished its modelling so could not say what increases might be entailed. However, it would be surprised if there was significant change from earlier modelling.

First published in Energy and Environment on April 11, 2019.

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