30 Oct 2014

Householders to pay less for energy

8:33 pm on 30 October 2014

Households could see their power bills drop by about $25 a year under a Commerce Commission decree which cuts profit margins for electricity and gas distribution companies.

Business and consumer groups that pushed for change say the decision has implications for other monopolies.

The Commerce Commission today released a ruling that electricity and gas distribution companies must cut their profits by about $45 million a year.

The Major Electricity Users' Group took a high court challenge against power pricing along, with the northern Employers and Manufacturers Association and Consumer New Zealand, and executive director Ralph Matthes said it would mean the average household would pay about $25 less a year for power.

However, it would have liked to have seen profits reigned in more.

"We were arguing for a total reduction in terms of $130 to $140 million a year. We got $45 million. That's in the right direction," Mr Matthes said.

Commerce Commission deputy chair Sue Begg said the review was sparked by a High Court judgment at the end of last year which suggested current permitted profit levels could be too high.

She said the commission took a wide range of expert opinion into account.

"We have come to the conclusion that the return that we allowed the businesses previously was higher than necessary."

power pylon

Photo: RNZ / Diego Opatowski

Warning from Vector

However, Vector, the country's largest lines company, warned the decision would put pressure on its ability to invest in extending its network, which was critical to Auckland's growth.

Electricity Networks Association head Alan Jenkins said the entire regulatory structure was due to be reassessed by 2017 and the commission's move came as "a rude shock".

"And it does give everyone pause when it comes to thinking about the other things that we need to provide investment certainty."

Mr Jenkins said the sector was driven by public safety and supply reliability but lines companies were living in challenging times, when demand was lagging behind forecasts and returns were linked to what regulators would allow.

However, Employers and Manufacturers Association northern head Kim Campbell said monopoly companies had enjoyed extraordinary profits for too long.

He said while $25 per household per year was not big money, the decision sent a strong signal to the sector that people were watching. Other monopolies, such as airports, should take notice.

"When we look at the stock exchange, the largest and most profitable companies tend to be monopolies... so getting the regulatory framework right is important for the overall cost structure of our economy."

The changes come will apply to electricity lines companies from next April and to gas pipe companies from 2017.

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