Review will consider whether Kiwi households get fair deal on power

Wednesday, 28 March 2018

Electricity retailers have welcomed the terms of reference for a government review of power prices.

The review is designed to look at whether the market is providing efficient, fair and equitable prices, in an environment in which technology is evolving.

It will look at whether electricity suppliers have the ability to extract 'excessive profits' over time, whether all consumers have access to affordable electricity services, and whether the cost of providing those services is or should be spread evenly across different types of consumers and regions.

It will consider barriers to competition, the impact of different behavioural patterns, the regulatory framework and any cross-subsidisation by power companies' customers.

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That will include scrutiny of the low-user fixed charge system, under which households that use less power than the median can opt to pay a lower daily fixed charge, and a higher per-unit price for their power.

There have been suggestions that houses with solar power systems that switch to that billing option then pay less than their fair share of the cost of maintaining infrastructure.

Recent analysis has indicated that time-of-use pricing could be used to encourage people to use electric vehicles, and better reflect the cost of delivering power to New Zealand households.

'Residential electricity prices have risen by around 50 per cent since 2000 but the price for business remained flat. We want to find out why that is,' said Energy and Resources Minister Megan Woods.

'We need to consider how the market operates as whole because all of it contributes to what makes up our power bills.

'The review is also tasked with looking at how the electricity market and its regulatory framework is placed for the future especially in the light of the rise of emerging technologies such as solar power and electric vehicles.'

Woods said the composition of the expert advisory group was in its final stages. 

'The review will be carried out in stages with the first phase looking at determining facts and building evidence and the scope of further stages will be shaped by those findings.'

The Electricity Retailers Association welcomed the terms.

Chief executive Jenny Cameron said it was not just an issue of price but about the future of the industry in New Zealand.

'Ensuring customers have an electricity system that meets their needs. We welcome a look at the costs for customers and whether they are fair, equitable and efficient. We also support the inclusion of a review of the low-fixed charge and its impact on different customer groups, and if the sector is ready for taking up new technology,' she said.

'There may be a perception that electricity prices are high, but they have been flat in real terms over the past five years and are running below the rate of inflation and below the rise in other household consumables. Electricity now comprises just 2.9 per cent of the average weekly household budget.

'Nevertheless, we know that some people struggle to pay their bills, and we want to help find multi-dimensional solutions to ease that.'

It comes as the Commerce Commission clears the way for lines company Powerco to raise prices for its network upgrade. It is expected that the typical Powerco customer's monthly bill of $210 would increase by $2.70.

It has also approved a similar application by Wellington Electricity that would see a typical $185 monthly bill increase by $1.70.