Contact Energy hikes prices by 10% for 280,000 customers despite 'record' month

Friday, 18 October 2024

Contact Energy is raising electricity prices steeply for an initial tranche of 280,000 households in December, despite a broker estimating it had just achieved a “record” $87 million monthly operating profit.

The size of the rise will depend on how much power each customer uses, but chief retail officer Matt Bolton said that on average customers would see their weekly bill go up by about $5 a week.

“Broadly speaking, they'll go from about $50 a week to about $55 a week.”

The company has about 440,000 electricity users in total and the price rise would flow through to the remaining customers — such as those who had only recently joined Contact — over the coming year, Bolton said.

Contact Energy raised its dividend pay-out to shareholders in August after reporting an 85% jump in its net profit to $235m for the year to the end of June.

Combined, the country’s big four power companies more than doubled their net profits to just under $1.1b in the year to June, from $530m last year.

Broker Forsyth Barr estimated on Thursday that strong hydro inflows helped Contact achieve a “record” operating profit of $87m in the month of September.

However, the Major Electricity User Group has in the past cleared Contact from making excess profits over the longer term, focussing its attention so far instead on high returns recorded by Meridian Energy.

Contact said in a letter to customers that prices were “increasing because the costs of providing energy to you are rising”.

Bolton said the main reason for that was higher transmission and distribution charges.

Its price rise reflected both increases in costs it had incurred and other cost increases that it had not yet experienced but was anticipating, he said.

“We're going through a once-in-a-generation shift in the cost of getting energy into Kiwi homes. The Commerce Commerce has come out recently and notified that transmission and distribution costs will go up by about $4 a week.”

That was an “industry situation”, he said. While Contact appears to be moving first, he would not comment on the implications for the pricing of other power firms.

Contact’s bumper September operating profit was a “one-off” caused by a “very extreme set of circumstances”, Bolton said.

“We have kept cost increases about in line with inflation for the better part of a decade and what we're now seeing is a small increase on where that tariff needs to go to, because of the cost that we see coming towards us.”

Contact’s stiff price rise comes as the Government trumpets a drop in annual inflation to 2.2% and as low growth and rising unemployment encourages consumers to keep a lid on spending.

“It is tough out there. We absolutely are very mindful of that,” Bolton said.

Energy Minister Simeon Brown released a government policy statement on energy policy last week which has been viewed as broadly supportive of the current industry structure.

It was welcomed by the Electricity Retailers Association (Eranz), which despite its name represents the interests of the large gentailers — including Contact and Meridian — rather than independent power retailers.

Eranz chief executive Bridget Abernethy said in response to the Government statement New Zealand should be “proud of its predominantly renewable and internationally affordable world-class electricity system”.

Independent energy retailer Octopus Energy said on Friday that polling it commissioned indicated 68% of people thought power company profits were unreasonably high and only 15% thought them reasonable.

Nearly half of New Zealanders were more concerned about their power bills than they were a year ago and 63% thought the Government wasn’t doing enough to bring down prices, it said.

The company has been campaigning for the Government to break-up the big gentailers by separating out their retail and generating arms, which could be expected to be in Octopus’ own commercial interests.

Chief operating officer Margaret Cooney said people understood that the current electricity market wasn’t working and the big power companies were making big profits.

“They want something done about it and they’re seeing structural change as the solution,” she said.