Competitive power prices recommended

Press, 3 December 1987, Page 3

Competitive power prices recommended

By

OLIVER RIDDELL

In Wellington

The preference for competitive pricing of electricity has been supported by the weight of public submissions to the Electricity Corporation.

This is revealed in a report on electricity pricing for the corporation’s marketing arm by international marketing consultants, Arthur Young. The report said that while the corporation recognised its dominant role in the electricity sector, it was committed to competitive pricing. Such a policy would mean that prices would fall when supply exceeded demand and vice versa. That would provide appropriate Incentives for over-all supply efficiency and electricity use, allow fair competition to emerge, and ensure the longterm viability of the industry without the need for direct or indirect subsidies from the public purse.

The report said there was a substantial overcapacity of electricity generation and that should result in prices in real terms remaining relatively stable for a number of years — subject to the outcome of the negotiations on the value of the assets. Some submissions had discussed the need for a

stable pricing policy. The report recommended that an indication of the likely future price trends be given to the market once a pricing policy had been established.

Most customers wanted prices to remain reasonably stable over the year, and had recommended that several pricing options be offered to meet the different needs of the corporation’s customers. The general manager of Electricorp Marketing, Mr Drew Stein, said the report indicated the approach that would be taken in designing and restructuring pricing policy.

The scenarios outlined in the report, and others, were being evaluated and a detailed pricing policy would be presented to the corporation’s retail and direct-supply customers early next year, he said. Overall, the report said, the price level for next year should not be fixed to a guaranteed market average rate of return. “We suggest that the corporation may need to accept a lower rate of return initially while it has surplus capacity,” Arthur Young said.

The value of this surplus capacity would be realised eventually by higher returns once it was fully utilised.