Govt slams South Island power price hikes

The 'alarming' power price rises announced by Contact Energy for South Island customers will be put under the microscope by government, Commerce Minister Lianne Dalziel and Energy Minister David Parker said today.

"These price rises are alarming and I fail to see how they can be justified," Lianne Dalziel said.

"The latest price increases, especially for residential consumers, follow a worrying trend of price rises in excess of general inflation, and I intend to ensure that the market is not being manipulated by electricity retailers. I want assurance that consumers are getting a fair deal."

Contact Energy has just announced price increases of 10-12 percent in Wellington and parts of the South Island. Meridian Energy and Mighty River Power have also recently increased prices.

"We were told a year ago that no more significant price rises were on the way, yet here is another major increase. This further amplifies the gap between residential and industrial tariffs in a way we find difficult to comprehend," David Parker said.

Contact Energy's argument that transmission constraints underlay the price rises, did not seem to make sense, David Parker said.

"In general the South Island produces more power than it needs every year. That is likely to be true even for this year, when a very dry winter has meant an unusually large amount of power has had to be sent from the North Island to the South. Cutting the South Island loose from the North Island would not see the South Island run out of power, therefore it is hard to understand the logic that South Island power prices should be higher than in the North.

"I note that the Electricity Commission head, David Caygill, has expressed similar concerns today.

"The concern is that Contact Energy's real reason for putting up South Island power prices is because their market power is unconstrained by real competition. If so, that is an unacceptable situation."

Ministers noted that their respective regulatory agencies – the Commerce Commission and the Electricity Commission – are currently investigating the adequacy of competition in electricity markets.

"However, we will be asking Cabinet on Monday to consider whether a broader inquiry is needed into whether these price increases are evidence of a lack of competition and market power being used to rachet up prices," Ministers said.

In the meantime, Ministers encouraged consumers facing significant price increases to shop around to ensure they have the best deal. Recent analysis by the Electricity Commission indicates that an average household consumer can often save several hundreds of dollars a year by switching to a retailer offering lower prices.

ENDS

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