Fisking electricity price claims agains

October 1st, 2013 at 11:00 am by David Farrar

I do wish there would be more scrutiny of claimed increases in . The data I consistently use to measure the impact of electricity on the average household is the Stats NZ Consumers Price Index, electricity class.

Now 3 News reports:

But at the same time, Labour and the Greens took the opportunity to release data showing electricity profits continue to increase, and 400 households each day are now having their power disconnected because bills are not being paid.

Dunedin pensioner Rosemary Dorey describes her latest power bill as “a horrible surprise”.

She is tempted to turn her heaters off to save money. 

“It’s very tough when they get to nearly $300 a month,” she says. “That’s quite a lot when you’re on a pension.”

So why is electricity getting more expensive, when new figures show electricity demand has actually dropped in the past five years, down 1.6 percent? Over that time, the price of electricity has gone up nearly 30 percent.

30% sounded too high to me. Usually the opposition are referring to price increases since the election. In December 2008 the electricity CPI was 1175 and today it is 1404 – that is a 19.5% increase over four and a half years or around 4.3% a year.

Note that includes the GST increase (which had tax cuts to compensate for it) but also the introduction of the Emissions Trading Scheme which imposed an external cost on some electricity. Labour and Greens are proposing to double the cost of the ETS on the electricity sector incidentally.

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22 Responses to “Fisking electricity price claims agains”

  1. Redbaiter (10,564 comments) says:

    It doesn’t matter if its electricity or any commodity, the price of that commodity has built into it a cost of government.

    NZers cannot simultaneously have a huge all encompassing government and cheap electricity.

    That is the bottom line on power and many other staple commodities.

    Why don’t National articulate that simple truth?

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  2. anonymouse (705 comments) says:

    Cunliffe as expected is playing very fast and loose with disconnection stats,

    have a look at this report from the electricity Authority http://www.ea.govt.nz/dmsdocument/9582

    It basically shows that after a period in 2007 when basically power companies became $hit scared of disconnecting any customer after the whole Muliaga tragedy, disconnections have gradually returned to a level slightly less than in 2006,

    It appears that theses stats were not collated centrally before this date.

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  3. gordon_gekko (2 comments) says:

    It’s important to remember a power bill is made up of three components, energy prices (of which demand is down), lines charges and transmission costs.

    After almost 25 years’ of reform the average New Zealand household electricity bill has risen from
    $61 a month to $183. Can paying $1,470 more for a year’s power be compatible with an industry
    getting it right or is it time for a change?

    The $1,470 average annual increase:
    $635 reflects price inflation and higher GST
    $595 is due to higher line/grid/meter/retail back office costs
    $240 comes from increased wholesale electricity prices

    http://www.infratil.com/assets/Uploads/PDF/updateseptember2013.pdf

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  4. Ed Snack (1,941 comments) says:

    So can we untangle it further ? GST is worth perhaps 2%, so 17.5% or around, say, 3.7% a year. Inflation according the RB from Q1 2008 to Q3 2012 was 2.6% compounding, so an excess of 1.1% roughly pa. How much of that can be attributed to the ETS, anyone know how much. The Covec report to the Environment ministry (April 2011) couldn’t identify an impact because of price volatility, anything more recent anyone knows about ?

    Other factors, more expensive generation ? It would seem to me on a purely empirical basis that all recent expansion has been in wind and geothermal, both of which are more expensive to build and operate in terms of their output compared to the old “backbone” hydro plants. Thus we would expect increases in average costs as the capital cost increases.

    How much also is derived from “replacement cost” calculations on existing plant ? The actual real cost of almost every dam except maybe the Cromwell one should be long recovered and written off; the replacement costs as used by accounting rules (in order, usually, to justify swinging profit increases) however would be sky high. Is this the other cause, theoretical cost of capital calculations based on revaluations ?

    So on the face of it, price increases of around 40% higher than inflation, but not huge in $ terms.

    However I don’t see any simple answers to reduce the price to the consumer. Especially not if the ETS costs are to be increased. That is unless a purely political solution is found in that the headline cost is reduced, at least to “vulnerable groups” by subsidies, which will of course be paid by the rest of us.

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  5. freedom101 (513 comments) says:

    The list of Labour half truths and exaggerations will snowball as it’s the only way they can get any media traction. The truth is not very exciting and generally shows that the country is going in the right direction. The media on the other hand are only too pleased to repeat sensational claims in the hope of building viewing or readership audiences. I’m close to giving up watching TV news or reading the paper.

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  6. CJPhoto (228 comments) says:

    So 19% of the 30% increase is due to inflation. I wonder what % of the increase relates to lines (transpower and local) and how much relates to the actual Gentailers.

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  7. Harriet (5,203 comments) says:

    “……Labour and Greens are proposing to double the cost of the ETS on the electricity sector incidentally….”

    Well that’s an election loser if ever you saw one – just ask Juliar!

    Tony is getting rid of ours.

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  8. Harriet (5,203 comments) says:

    And I might add – if Colin Craig were to say that he will outright oppose any ETS increase, or going onto the international floating rate like Tony Abbott has – which would hit fixed income earners like pensioner Rosemary Dorey – then he’ll probably pull another 3% – then he’s at 4.8%.

    0.2% to go. :cool:

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  9. swan (665 comments) says:

    The CPI increase is nominal surely? So the real cost increase is less?

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  10. peterwn (3,345 comments) says:

    There is an interesting graph on page 19 of Infratil’s 2013 Annual Report see:
    http://www.infratil.co.nz/assets/Uploads/PDF/iftar2013.pdf
    (unfortunately it is a rather large download at 3.3MB)

    It shows electricity prices 1969 to present at present day money values. This shows the wholesale price in recent times is higher than that in the 1970’s. There was an aberration from 1973 – 1975 or so as the Kirk Labour Government froze all government charges while in office. The residential price increased in recent times because of the phasing out of the more favourable residential charges (these consumers had the voting clout on Power Boards and Council run MED’s)., and because of the addition of GST.

    It does indicate that squeezing generation margins would not reduce retail tariffs too much, to get a noticeable effect, Transpower and distribution margines would need to be squeezed. Squeezing transpower margins wouls mean a significant drop in Government income, and squeezing distribution margins will discourage capital expenditure. Subdividers and developers of major buildings could then be forced to provide finance for distribution development and receive only the regulated return on the investment. This would also help drive up housing costs.

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  11. wreck1080 (4,004 comments) says:

    My power prices have doubled in 10 years. My wages haven’t.

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  12. greenjacket (489 comments) says:

    Expecting TV3 to scrutinise claims? Hope springs eternal I suppose.

    TV3 has become such an obvious mouthpiece for Greens-Labour that I avoid watching it on principle.

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  13. Adolf Fiinkensein (2,707 comments) says:

    wreck

    Work harder!

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  14. davidp (3,587 comments) says:

    >Dunedin pensioner Rosemary Dorey describes her latest power bill as “a horrible surprise”.

    Dunedin pensioner Rosemary Dorey needs to understand that being cold and poor is a small price to pay for being Green and eco-friendly. Her sacrifice may not have any effect on the climate, but she will be able to bask in the glow of NZ’s eco-smugness.

    Besides which, if pensioners freeze to death then housing will be more afordable for the young property investors who comprise Cunliffe’s core support.

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  15. OneTrack (3,402 comments) says:

    “My power prices have doubled in 10 years. My wages haven’t”

    Won’t be anything to do with all the wind power schemes that the power companies have been doing over the last few years. And what do the Greens want to do?

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  16. Redbaiter (10,564 comments) says:

    “Inflation” is not a legitimate driver of price increases.

    Its like saying price increases are caused by price increases.

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  17. Pete George (23,853 comments) says:

    “It’s very tough when they get to nearly $300 a month,” she says. “That’s quite a lot when you’re on a pension.”

    It’s quite a lot full stop, especially if for a single person.

    My highest power bill this winter was $179, although we (2 adults) have a fire and a heat pump. We only heat the rooms we use, we have electric water heating and cooking, and use electric heating (non heat pump) in our bedroom.

    I know a family (2 adults, three children) who heated their whole all electric house with a heat pump and got one $600 bill, but then changed their heating habits quickly.

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  18. CryHavoc (47 comments) says:

    I heard Silent T on TV3 this morning lamenting high power prices and reiterating that Labour’s policy was to set up “NZ Power” the single buyer.

    Here’s what I don’t understand. If the profits made by retail power companies are so excessive (compared to e.g. the cost of capital, and of course the cost of operation, etc.), then why don’t Labour/Greens propose as their solution some sort of NZ Govt-run retail power company, where they can undercut the commercial players by making a more “reasonable” profit?* i.e. Kiwibank without the subsidies?

    Could it be that, actually, the retail prices are a fair reflection of costs (especially since the regulatory burden, by way of the RMA and the ETS, among others, apparently makes new investment in the sector prohibitive)?

    *Just to be clear, I don’t advocate Govt involvement in the retail sector at all – it’s just that that’s the only logical answer to the problem that they say exists, unlike a monopsony arrangement which will completely destroy future investment in the sector and raise power prices (or Government subsidies) in the long term.

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  19. scrubone (3,097 comments) says:

    It’s quite a lot full stop, especially if for a single person.

    Indeed. I’d have thought most pensioners would be careful enough to not come close to a bill that large.

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  20. david (2,194 comments) says:

    I suspect that Ms Dorey might be another LP “useful idiot” or else is a relly of Rufus Paynter.

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  21. OneTrack (3,402 comments) says:

    CryHavoc – Not sure about Labour but it is clear that what you outline would be the Green’s approach. Except they would simply nationalise the existing power companies. No need to undercut any commercial companies if they don’t exist.

    In their world, the government owns the means of production – that includes electricity.

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  22. janet (3 comments) says:

    is this lady living on her own? I do and am a Nova customer (highly recommend them). I have both my gas and electricity on the same bill each month and I have never had to pay more than $100. My heating is via a heat pump with hot water and cooking on gas. $300 is just ridiculous.

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