Power price could fall 35%—claim

Press, 1 June 1989, Page 3

Power price could fall 35%—claim

By

NIGEL MALTHUS

Electricity retailers say the wholesale price of power could fall 35 per cent, rather than merely stay below the rate of inflation.

Reacting to Electricorp Marketing’s promise that wholesale prices would stay significantly below the rate of inflation over the next three years, the Electricity Supply Association said the announcement was not all it was cracked up to be. An E.S.A. spokesman, Mr Geoff Ramshaw, said the wholesale price of electricity had been found to be 35 per cent higher than it should be in the North Island by the Government’s consultants, Putnam, Hayes, and Bartlett.

“In this context, Electricorp’s announcement didn’t mean a lot,” said Mr Ramshaw. “When the consumers’ price index is running at 4 to 5 per cent, all that Electricorp are promising is perhaps a reduction in real terms of only around 5 per cent over three

years. “That effort pales in comparison to the absolute reduction in prices identified in the consultants’ studies,” he said. Mr Ramshaw said that reductions in power prices were nothing new, as most supply authorities had held retail prices, and in some cases, reduced them over the last two years, in spite of wholesale price rises by Electricorp.

“That shows we have been flexible, in spite of what some commentators are saying, and in 27 years from 1960 to 1987, non-domestic prices actually fell 40 per cent, from 16.5 c a kilowatt-hour, down to 10c.”

The Electricorp promise to reduce prices in real terms was made on Tuesday, with the announcement of an industry assistance package

offering special pricing deals for commercial users needing assistance starting out or getting through a lean period. Mr Ramshaw said all consumers would benefit, not just selected industries, if there were a 35 per cent reduction in bulk prices. “Consumers are still only heading toward lower power prices on a wing and a prayer.” The chief executive of the Port Hills Energy Authority, Mr lan Bywater, welcomed the promise of restraint on wholesale prices, but questioned Electricorp’s ability to keep the promise, unless it had a longterm commitment from the Government. As a state-owned enterprise, with shareholding by two Ministers of the Crown, Electricorp might not be able to hold prices,

if the Ministers demanded an increased rate of return on Electricorp’s assets, said Mr Bywater. He was concerned at Electricorp’s decision to start publishing weekly spot prices for energy. The spot price represents the marginal cost, or the cost of generating one more unit of electricity on top of that already produced. The figure is far below the average unit price. It would not be the price at which retailers could buy bulk power, and unless that was clearly explained to the public, it would be bad for the whole industry, said Mr Bywater. “It would be totally unjustified criticism of the industry if people picked up the spot price week by week and compared it with retail,” he said.