COMMISSION DISMISSES YOUR SOARING POWER BILL
20 July 2008
TIM HUNTER
The deluge of rain has eased the strain on our electricity supplies and removed the word "crisis" from newspaper headlines, but that doesn't mean the problem has gone away.
The same thing could still happen next year.
Just as well, then, that the Electricity Commission is on the case, issuing a long paper on July 8 covering options to improve the electricity market.
The paper contains a great deal of solid work and has some useful ideas, such as its options to improve incentives to build more generation capacity.
Unfortunately, however, the commission blots its copybook by dismissing the number one consumer complaint - soaring residential electricity prices.
Its detailed analysis breaks down power bills into component parts - the charge for networks to carry power to customers, the charge for the energy itself, and the charge for retailing which covers services such as billing.
Of the three, the energy charge has contributed the most to the inflation of power bills between 1999 and 2006, the commission said. This was of no concern though, because the rise was not higher than the estimated cost of new generation.
End of story.
Except that it's not - the commission's own data shows the energy component of residential power bills has risen much faster than for industrial and commercial users. In nominal money terms, the cost of household energy has doubled since 1999, from about 6c a kilowatt/hour to about 12c, while commercial energy has gone up about 50 percent from about 6c to about 9c.
This differential is not due to the higher cost of networks supplying the multitude of households, nor the cost of billing services and marketing - those costs have been stripped out. This is purely the electricity cost.
So why has the cost risen so much more for one group of customers? The commission doesn't say. It doesn't even ask itself the question.
The obvious concern here is that if price differentials have no fundamental explanation, another explanation is likely to apply - lack of competition.
Of course, there are reasons why households could have different energy costs. Their usage tends to be concentrated in morning and evening peaks, while businesses tend to use power more evenly during the day. This places different burdens on supply.
But those usage patterns are unlikely to have changed much since 1999, so they wouldn't explain why residential costs should increase at twice the rate of business costs.
You would think the commission would be keen to explore this anomaly, but no.
There is another sign of a blinkered approach in its discussion of retail competition.
The commission's analysis shows consumers on the most common tariff options could save up to $265 a year by switching power company and asks why they are not shopping around.
One answer is in its survey finding that half of consumers can't name a supplier other than the one they currently use. For any other mass market retailer, a survey result showing so many customers were ignorant of your product would be horrific.
But rather than ponder the power companies' lack of enthusiasm for marketing, the commission assumes customers are at fault.
To be fair, it does look at structural reasons for power companies to be less than vigorous in trying to acquire customers. For one, they like to balance customer numbers with generation capability - too many customers in the wrong place can be risky.
The answers here involve complex instruments to hedge generation and transmission risk, and there is considerable doubt about their effectiveness. Indeed, part of the difficulty appears to be the sheer intricacy of the electricity market.
But one uncomfortable thought persists - if there are structural reasons why power companies struggle to compete for residential customers, how come they seem to have no difficulty competing for commercial customers?
© 2008 Fairfax New Zealand Limited.
Sunday Star Times
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