KEY POINTS:
The Government is to scrutinise Contact Energy's decision to hike power prices by 10 per cent or more.
Commerce Minister Lianne Dalziel and Energy Minister David Parker said they would raise the issue with Cabinet and seek a broad inquiry.
The Commerce Commission and Electricity Commission are considering the adequacy of competition in electricity markets.
"However we will be asking Cabinet on Monday to consider whether a broader inquiry is needed into whether these price increases are evidence of a lack of competition and market power being used to ratchet up prices," the ministers said.
The price rises for Wellington and Dunedin customers are effective from November 1.
A month ago, when it posted a $237 million annual profit, Contact said an increase of at least 6 per cent was likely.
Contact said the latest price rise was expected to cost the average customer about $14 more a month.
Contact chief executive David Baldwin yesterday said not enough generation had been built in the South Island to keep up with demand.
He also blamed inadequate transmission lines, used to carry electricity, including the controversial Cook Strait cable upgrade and insufficient wire between Manawatu and Wellington.
Contact said the dry autumn and winter caused big losses for the company and said the completion of the Cook Strait cable in 2014 would ease the problem.
Ms Dalziel said she could not see how the increases could be justified.
"The latest price increases, especially for residential consumers, follow a worrying trend of price rises in excess of general inflation, and I intend to ensure that the market is not being manipulated by electricity retailers."
Mr Parker said Meridian Energy and Mighty River Power also recently increased prices.
"We were told a year ago that no more significant price rises were on the way yet here is another major increase."
The gap between residential and industrial charges was difficult to understand, he said.
Electricity Commission chairman David Caygill this morning said Contact's claim the country was lacking transmission was "strange" and transmission was only a problem when trying to transport electricity between the North and South Islands.
Mr Parker also disputed transmission constraints were to blame and said generally the South Island produced more power than it needed yet residents in the south were charged more.
"The concern is that Contact Energy's real reason for putting up South Island Power prices is because their market power is unconstrained by real competition. If so that is an unacceptable situation."
- NZPA
