Brave new world may not mean cheaper power

By Mark Reynolds

A brave new competitive world for the electricity industry gets underway today, even though some of the legislation for operating in the new environment is still being drawn up.

The changes will result in more choices for consumers, but that does not necessarily mean prices will fall.

While retail electricity companies are expected to scramble for new customers, and electricity generators could start a wholesale market price skirmish to increase their market share, the major benefits of any changes could be retained by companies who have to pay for expensive assets in the energy industry that have changed hands in recent months.

In the network side of the electricity industry, the new laws might even encourage some companies to increase the fees they charge for use of their power lines.

Laws governing information disclosure by electricity network operators are still being finalised by the Ministry of Commerce.

The new laws are designed to make sure power line owners do not overcharge for the use of their assets. If they are assessed to be overcharging, they will be subject to price control.

The Ministry of Commerce is still deciding exactly how to assess the thresholds that will trigger price control. Areas that are still being defined include whether returns should be measured every six months or every year.

The Ministry of Commerce is also looking at whether companies with a widespread network could be unfairly treated, compared with their town cousins, who transmit electricity in a more confined area.

Mike Lear, a deputy secretary with the Ministry of Commerce, said consultants had been employed to look at issues like how the returns network companies are making on their assets could be accurately measured.

The new rules from network operators have been criticised by power line owners, who say the regime is cumbersome and will be open to manipulation. For some companies there will actually be an incentive to raise prices, because they will be able to lift charges while still falling within the overall industry price guidelines.

Traditional network companies, many of which are community-owned, have mostly sold off their retailing and generation assets. That separation was forced by the government and was designed to remove any opportunity for cross-subsidisation between power production, trading and transmission operations.

There are, according to Commerce Commission commissioner Kate Brown, a lot of smaller organisations that have yet to come to grips with that legislation and some businesses could still face a forced separation of their lines and energy assets. Many commercial property owners could fall into that bracket.

The separation has included splitting the Electricity Corporation into three companies that will compete with each other in the generation market. The extent of that competition is clouded by yesterday's High Court injunction, but they will compete at some level.

Those ECNZ companies are also allowed now to provide a service to retail customers.

The largest of the ECNZ units is Meridian Energy, which owns about 25 per cent of New Zealand's generating capacity, including eight hydro power stations on the Waitaki River and the Manapouri hydro station.

The ECNZ offspring with the largest customer base is Mighty River Power, which inherits Mercury Energy's 250,000 retail customers in Auckland and the customer base of fledgling national retailer First Electric.

The third ECNZ division is Genesis, which owns the Huntly power station and has 155,000 customers spread around the North Island.

The ECNZ units will be competing mainly with TransAlta and Contact Energy, which between them serve nearly 1 million of the nation's 1.6 million retail energy customers.

Exactly how these retail companies will move to win customers from each other is the great unknown of the new environment. But from today they will have a new mechanism in their competitive arsenal.

That weapon is profiling, which essentially pigeon-holes consumers according to when they are likely to use power. It is a way of estimating usage for smaller customers instead of installing expensive time-of-use meters.

The profiling will allow retailers to offer more competitive deals, because they can offer special deals for small customers who use power at off-peak times when prices are lower.

It will also allow retailers to target a specific type of customer, such as coolstore operators or dairy farmers, who might be able to adjust their power usage if they are offered a special price.

For the household customer, competition is more likely to result in offers of combined services or discounts on products, rather than a simple reduction in electricity prices.

In its crudest form, this would see a power company offer their customer a cheap household appliance like a heater if they stayed with the supplier.

The more innovative companies will link up with other service providers like telecommunications and finance companies, to offer long-term contracts for a series of products and services at a bundled price.