Power retailers to pass on most of $200m in savings

Power consumers look set to capture much of the benefit of a $200 million reduction in lines charges in the coming year, with most of the country’s major retailers indicating they will pass them through.

The drop in charges — $72m across many of the country’s electricity distributors and $142m from the revenue of national grid operator Transpower — was announced by the Commerce Commission late last year and reflects the sharp fall in interest costs since the commission last reset the regulated charges five years ago.

Historically, electricity retailers have not always passed through increases or decreases in lines charges, depending on where they were trying to gain customers and how much competition they faced. Many firms also tended to review charges regionally and seldom in annual cycles.

But major retailers have indicated the lower fees, effective April 1, will be passed through. Lines charges typically account for a quarter to a third of a household power bill.

Genesis Energy, the largest electricity retailer with almost a quarter of the country’s power accounts, expects the savings for its customers will be worth up to $50m and will reduce typical bills by 3 or 4 per cent.

Mercury NZ, the third-largest retailer with about 17 per cent of the market, expects to pass on savings of about $24m to its customers.

Contact Energy, the country’s second-largest retailer, said it is still reviewing its position. Meridian Energy, the fourth-largest retailer, said it is yet to finalise its pricing but expects to pass the reductions on as it has in the past.

Political scrutiny of the power sector is high, with the Government still working to effect recommendations from an independent review last year that called for greater action to reduce energy costs for the most vulnerable consumers.

But while the drop in lines charges is large, it is not equal across the country. It also comes at a time when rising carbon costs, interrupted gas supplies and low hydro storage boosted energy costs for the first time after several years of declines.

At its first-half earnings this month, Contact noted that energy costs in the six months ended December 31 were 7 per cent higher than the year before. Earnings from its customer division fell by $18m as higher power, gas, carbon and network costs were not recovered.

Only about a fifth of its customers had faced a price increase the year before, Contact noted.

Only 17 of the country’s 29 lines companies are regulated by the Commerce Commission, although many of the other community-owned networks model their charges on the price paths set by the commission.

Of the 17, only 14 face revenue reductions. Dunedin-based Aurora was cleared to raise its charges this year, as it prepares for a potential three-year, $400m upgrade programme to address historic underinvestment and meet increasing population growth.

Powerco and Wellington Electricity, the second- and fourth-largest networks respectively, are also not facing revenue cuts in April as they negotiated customised price plans with the commission. Those agreements end in 2023 and 2021 respectively.