Power still costs less

Duncan Bridgeman

Friday 30th January 2004

While local businesses complain about electricity price increases, latest figures show New Zealand is still among the most competitive nations in the world for power.

The latest international comparison of electricity prices put out by the Ministry of Economic Development puts New Zealand at the bottom of the OECD ladder for both industrial and residential electricity prices.

Local businesses paid 7.07 cents a kWh in the first quarter 2003, well below most other countries paid.

Only Sweden, Australia and Luxembourg paid less for their electricity, with Australian figures calculated for April 2002.

New Zealand has long had a comparative advantage when it comes to electricity but according to the Major Electricity User's Group (MEUG), which represents a third of the country's users, recent price increases are likely to have eroded that position.

The group's executive director Ralph Matthes, who has been vocal in accusing major power companies of profiteering, said yesterday that while some other countries were also experiencing price increases, New Zealand would have already moved up the ladder.

It was no longer a question of when local businesses start paying prices similar to their international counterparts but instead how high up the OECD ladder the country will be placed. "I think we would still be relatively competitive but there's no doubt we would have shifted."

The relatively cheap electricity has been a major factor underpinning our export industries in recent years.

"Why wouldn't we want to keep that competitive advantage rather than let the owners of the generators pocket it ... remembering that one of the biggest owners is the government itself?" Matthes said.

In the past 12 months most parts of the country have been affected by electricity increases as power companies adjust their pricing in response to rising wholesale prices. Wholesale prices have gone up because the industry is forced to look toward more expensive energy sources in the face of dwindling Maui gas reserves.

The MEUG and others have questioned the size of the retail price increases, pointing to the power companies' significant profit gains as evidence of extreme over pricing.

However, a government report this week cleared the electricity companies of price gouging saying there was no clear evidence of a steep change in profit margins for retailers.

The heart of the issue facing power companies is the development of new electricity generation facilities.

Energy Minister Pete Hodgson has said the country is less than a year away from an electricity shortage but that new generation would not be built unless power prices kept up with the cost. National Party energy spokesman Roger Sowry blamed the government for the high cost of new generation because of environmental legislation

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