Call for free power

Experts say electricity costs in New Zealand are unjustifiably high. Photo / Greg Bowker

Companies are playing unfair power games.

New Zealanders should band together to demand the cheaper power prices offered to big industrial consumers, an industry expert says.

Victoria University's Geoff Bertram has called for power companies to supply 300 kilowatt hours (kWh) of power to each residential customer free of charge per month, by ring-fencing the product of old, cheap-to-run power stations. It would save customers about $115 a month.

The Herald on Sunday last week revealed Bertram's research, which shows Kiwi power prices have risen at more than twice the rate of prices in most other countries over the past 30 years.

Block pricing for residential consumers is not a unique idea. In California, customers receive their first 270kWh at less than half price.

It has been estimated that governments contribute $61 billion to the global power industry every year to keep prices down.

In 1992, Bertram proposed a special deal for households here. It was denied.

But with Mighty River Power about to go on the auction block, he says it is time to ask the question again. "Mighty River Power is sitting on a whole lot of hydro stations that cost nothing to run. Suppose they had to supply a slab of free power?"

It would cost the industry about $1.4b a year to provide the 300kWh, or about a quarter of its revenue. "I'm confident it's do-able," Bertram said.

Rio Tinto's aluminium smelter uses about 15 per cent of New Zealand's power and has negotiated a contract with Meridian for power to be supplied at a cut-price rate, believed to be about 5c/kWh. The standard power price was up to 28c.

Bertram said if the smelter closed, the Government could reallocate that contract and supply about half of households' consumption at the low rate. But Genesis spokesman Richard Gordon said retailers were already providing a bulk-buying service. "Our energy traders use their experience and knowledge to buy electricity and gas from wholesale markets at the best price for our customers," he said.

"As a retailer we then bundle together the energy costs, variable and fixed lines and transmission charges, industry levies, etc, then offer a fixed and competitive price to our customers."

Bertram blamed some of the meteoric price rises on power companies revaluing their assets to higher levels than they should and using the new values to justify price hikes.

James Lovatt, of Newstead Group Consultants, who has worked for the Natural Gas Corporation, agreed utility companies were revaluing their assets at a higher-than-necessary rate.

Generators and lines companies operate in monopoly environments because it is impractical to double-up on generation and distribution infrastructure.

Lovatt said that as assets aged, they became harder to put a concrete value on. "In the case of utility assets, which are particularly long-lived and many of which have had grossly deficient records concerning original cost or even the original date of construction, the problem of valuation compounds."

A profitability analysis of Meridian, Genesis and Mighty River in 2011 estimated economic profit totalled $3.8b between 2002-11, on total revenues of $42b.

Their invested capital rose from $4b in 2002 to nearly $12b in 2011, but most of this increase - $6.2b - was asset revaluations. Less than $2b representing the historic cost of net actual investment.

Bertram said the approach was savagely predatory. "No company under genuine competition can play these games."

Mighty River Power and Meridian did not respond to a request for comment.