The power bill lottery

Some households are paying twice as much for their power as other consumers - simply because of where they live.

Buller electricity users pay the most for power. The cheapest deal in the area, from Contact Energy, is a hefty $2827 a year for a three to four person household.

That is $1583 more than in the King Country, where Genesis Energy charges customers as little as $1244.

Central Auckland and Manukau City power consumers benefit from a $1671 annual bill from Genesis Energy. But across the bridge, and out west in Waitakere City, Meridian Energy's power bills are almost $300 more, at $1925. Meanwhile, in Wellington Meridian charges $2150.

Consumers are likely to be shocked by the discrepancies in power bills, identified by the Consumers' Institute on its powerswitch website. The estimates were for a typical household of three to four people using electricity to heat water, and with one person at home during the day.

Energy experts say the differences come down to the cost of supply and to how close the region is to power stations. Wellington has no local power supply, so it is more expensive than Auckland. And Buller is so far away from a power generator that the transmission costs hike up the prices.

The further a region is from power generators, the more expensive it is, says Meridian Energy spokesperson Alan Seay. "It costs a lot more to serve 400 people on a 40km stretch of power line. The cost per unit is going to be higher than to serve 4000 people on a much shorter line in the more densely populated areas. That's why [rural] areas pay more for their power than others."

But that's not the full story, according to energy analyst Molly Melhuish. She says the electricity companies have a "big scope" to cut their network costs for the consumer. And rural areas are perfect for renewable energy. Using solar panels, rural households could easily become electricity suppliers by sending the generated energy back down the line.

"The industry is absolutely dragging its feet on setting up its protection system to allow two-way electricity flow. It's unfair to charge them a whole lot because it's expensive to transport [electricity] without giving them a chance to give it the other way," says Melhuish.

Despite the giant bills for rural areas, she says, country people simply aren't as important to companies as the more profitable urban market.

"The remote rural people are disadvantaged because the electricity market doesn't like them."

Another reason why country dwellers face higher bills is a lack of electricity competition in rural areas. Ralph Matthes, chief executive of Major Energy Users Group, says urban areas are well served, with all the major companies competing.

"There's less competition in some of the regions compared to urban areas. The urban areas get four of the five big retailers competing, whereas in some of the regions, you might only get one - two if you're lucky."

But ironically, high rural prices could bring some relief to rural areas. Seay says the price of electricity, which has jumped by a third in four years, is now high enough to make more power stations a profitable investment. New stations could be built in rural areas, making energy more affordable to locals. And rural transmission lines are in desperate need of an upgrade.

"We need a good transmission system to carry that energy to where it is needed. There's an urgent need for an upgrade to the transmission system. But these are not easy things to get off the ground."

But until lines are upgraded and new power stations are built, rural customers may need more immediate relief. "Above all, you need the rural customers to get into fair negotiations for those prices," says Melhuish. "And New Zealanders generally don't mind subsidies. Cost subsidy itself is not wicked when it's justified for social reasons. As much as possible, the subsidy should be off-set by reducing some of those network costs."

And Matthes says changes are needed to how power companies bill their customers - he says the charges should be broken down.

"One of the things which could help is if we had more transparency in what people's bills are made up of - how much is distribution, how much is transmission and how much is the retailer getting. A little bit more transparency might help people say there is a rort going on, or that's a reasonable level of competition. It will help people understand whether they are getting a fair deal."

In July, it emerged that power prices increased 32.4 per cent between 2000 and 2005. Energy minister David Parker said at the time the main reason was because Maui gas was running out. It had artificially suppressed the price of power because the price of Maui gas, which set the market price for electricity, increased at half the rate of inflation. Because there was a need for more gas exploration, it was necessary to remove the price controls.

Beneficiaries Advisory Service says the increases are seriously affecting people on low incomes, causing increased debt and an increase in the number of people being disconnected.

Rural producers hit hardest

Deep in the Wairarapa, the Smith family are facing huge power bills - their cheapest possible rate is $2607, one of the highest in the country.

Alan Smith, husband of Vicki and father to Edward, 17, and Alexandra, 14, says the bills, almost $300 a month or $3600 a year, are crippling and completely unnecessary.

"We're fighting an uphill battle. It's all costs on costs on costs. It's utterly ridiculous. It's New Zealanders ripping the heart out of New Zealanders. The power should be produced for the people, not for profit."

And it's not just one man's gripe: independent energy analyst Molly Melhuish says Wairarapa has historically been New Zealand's most expensive electricity area. "Consumers have complained bitterly before and after privatisation, and they've never got anywhere, so they have a completely legitimate complaint."

Smith reckons the whole system is flawed - he says the power companies waste their profits. A local power company recently donated $600,000 to a local swimming pool, something he says was an outrageous extravagance. "The folk who are paying for it should be getting the gains, not the company. They dish out money. And the Government won't stop them. They're state-owned enterprises - they're getting paid."

Smith says it's especially difficult for rural producers - he has a timber manufacturing business, and power costs are through the roof. "New Zealand depends on rural products for its exports, and here they are charging them more. They can't seem to think that if they had power prices cheaper, they might be able to produce products cheaper."