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Power Bills: A Complex Saga

by Alan Eyes

If you have ever exclaimed dismay at your amount of monthly power bill and wondered how it could possibly be so high, and what you can do to reduce it, you are not alone. Over the next two months, elocal will examine the different components that go into your power bill, what that means for you the end user and ways to best ensure you are getting the most out of your energy provider.

With the mid-winter chills come higher power bills and the questions of did I really use that much electricity and what am I really paying for? In addition there have been news items recently about increases in wholesale power rates and large increases being paid by big business consumers. Will that impact our home power accounts?

Electricity we use in our homes is conveyed from the points of generation through the transmission system to the local distributors who then breaks it down to lower voltages and conveys it to our properties.

There are a number of components that make up our household and business monthly bills. The industry regulator is the Electricity Authority and the pie chart below helps us understand the components that make up the average bill.

Most of us who live in the elocal circulation area have the power conveyed to our properties in the Franklin / South Papakura areas by network lines company Counties Power (known as the Distributor). Those further north in the Auckland region are supplied through the Vector network. Both companies have consumer trust ownership with beneifits flowing back to consumers through an annual discount or dividend.

Generated electricity is conveyed to the local distributors through the Transpower (Government owned) Transmission grid.

Transpower charges the local distributor and the local distributor charges the retailer who send us our bill. With Government imposed GST added that means 43% of the average monthly bill we get as consumers is made up of these transmission and distribution charges. The Commerce Commission monitors the performance of these organisations and sets parameters including rates of return they can earn.

There are over 40 retailers (the companies who send us our electricity bills) and for most of us this is one of the five big companies - Contact, Genesis, Meridian, Mercury or Trustpower. Again referring to the Electricity Authority numbers about 15% of our bill is for the retailers’ costs ie their administration, billing, marketing etc. There is another 5% for metering and industry levies.

The biggest single part of the average home power bill, 37%, is for the generation of electricity - ie the actual electrical energy.

New Zealand is fortunate to have a large percentage of our electricity produced from what is classified as renewable energy. The majority is hydro, with a significant amount from geothermal, as well as wind and some solar. Constraints on natural gas availability and periods of low hydro lake levels, means coal used at the Huntly Power Station has again become important in keeping the lights on.

Pre 1999 the company that sold us the energy was also the company that delivered it. In 1999 legislation dictated separation of these two functions. However, the companies that generated the electricity were also allowed to become retailers. Twenty years on and our electricity continues to be dominated by five large (vertically integrated) generator retailers known as gentailers.

The price the retailers pay for the electricity they sell us is theoretically determined by what they buy it for from the wholesale market. However, the people who retail us our power are mostly the people who also generate the power and sell it to the market.

The wholesale price is determined each half hour. The generators make an offer to supply electricity, and retailers and large industrial customers advise how many kWhs they want to buy for that half hour. The System Operator, who is Transpower, decides which offers of generation to accept and the highest offer sets the price for everyone.

The generators are competing to sell the electricity. The higher the demand by consumers, the higher the price they can ask for the last few kWh required.

When there is plenty of water in the hydro lakes and the wind is blowing the price is often low. When we experience what has been happening of late the price is very high ie low lake levels and interruptions to gas supplies. In fact for many of the trading periods the price is far higher than cost of producing the power. This is thought to relate to an economic value be placed on the hydro lake water.

For the two years ended June 2018 the average wholesale price (i.e. energy only, excluding GST) in the South Auckland area was 7.6c/kWh. For the next three years just ended that price is almost double at 14.4c/kWh with prices on the futures market also significantly increased.

This has had a major impact on the electricity costs of industrial consumers and small retailers who do not also generate. Anecdotally other businesses are now finding as they renew supply contracts they also are facing big increases.

The now three-year period of high wholesale prices, even with hydro lakes having returned to average levels over the past few weeks, has implications for all electricity consumers. What is seen as failings in the functioning of the wholesale market is the subject of on-going frustration and discussion within the Electricity Industry. At least some of the issue is seen as relating to the market dominance of the large generator/retailers, three of who are majority owned by the Government.

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elocal Digital Edition – August 2021 (#245)

elocal Digital Edition
August 2021 (#245)