Electricity let-down: Little change to household bills despite big cuts to lines charges

Wednesday, 14 October 2020

Wholesale electricity prices have risen but the cost of generating electricity is little changed, so the failure of lines charges to lower bills shows a market problem, says Flick Electric.

Deep cuts to electricity lines charges ordered by the Commerce Commission in April have failed to result in consumers’ overall power bills falling significantly, government data shows.

Graeme Peters, chief executive of the Electricity Networks Association, which represents lines companies, said it appeared savings of $23 million a month were being pocketed “and the customer is seeing little or no savings”.

Consumers should have been left significantly better-off as a result of regulated cuts to the price that local lines companies and national grid operator Transpower can charge for electricity transmission.

But average power charges have only fallen slightly, data from the Ministry of Business, Innovation and Employment (MBIE) shows.

Most of the transmission savings have been eaten up by higher variable charges for the electricity households consume.

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Electricity Authority compliance head Sarah Gillies said it was reviewing how the April network price changes had passed through to retail prices.

It expected to publish some information next year.

Graeme Peters, chief executive of the Electricity Networks Association, said it appeared savings of $23 million a month were being pocketed.

Flick Electric chief executive Steve O’Connor said the market was “not delivering the right outcomes” and he believed the authority’s response was insufficient.

Vector spokesman Matthew Britton said it had warned that lower lines charges might not be passed on to customers and it was “looking forward” to seeing the outcome of the authority’s review.

“If it is found that price reductions have not been passed through this calls into question the integrity of the regulatory frameworks which are meant to balance long-term interests of consumers with incentives on regulated entities,” he said.

The lines charge component of power bills fell by an average of 8 per cent, from 12.1 cent per kilowatt-hour in February to 11.1c in August, MBIE’s figures show.

But the total price consumers paid for power fell by an average of only 0.6 per cent, or 0.2c, to 30.6c/KWh.

The reason was that the bulk of the lines price reduction was cancelled out by a 3.6 per cent increase in variable charges for electricity, which is mostly determined by generators’ charges.

There was significant regional variation, as the changes in lines companies’ charges mandated by the Commerce Commission ranged from a $1-a-month increase in Otago to a $34 drop in parts of the North Island.

Total electricity charges in Auckland were unchanged between February and August at 28.93c/KWh, as a 9.5 per cent reduction in Vector’s lines charges was entirely eaten up by a higher variable charge for power.

The regulated cuts to transmission charges were largely a reflection of falling interest rates lowering Transpower’s and lines companies’ allowable costs.

O’Connor said wholesale electricity prices paid by independent retailers such as Flick had risen between February and August.

But the actual cost incurred by “gentailers” in producing that electricity would not have changed significantly, he said.

“Really, their costs don’t actually move.

“If it is geothermal, or wind, or hydro, the actual raw cost remains the same.”

What was likely was that the bulk of the savings from lines charges would flow through to gentailers’ “bottom lines”, he said.

“It just seems to be another example of promises made being thwarted by market power,” he said.