The academic who maintains New Zealand electricity generators enjoyed an extra $5.4 billion in profits from 2010-2016 is hopeful the government's electricity price review will bring relief to consumers – but he's not holding his breath.
Dr Stephen Poletti, senior lecturer in energy economics at the University of Auckland Business School, bases that perspective on the first report from the review, set up by Minister of Energy, Megan Woods, in April.
That report has "not identified any evidence to indicate generator-retailer profits are excessive".
Poletti's computer modelling study, released last month, said market power rents – the excess profits generators can make – totalled $5.4bn between 2010-2016, a figure he found excessive. He called for a re-design of New Zealand's complex electricity market so profits could be reduced and consumers paid less.
His findings were disputed by some electricity retail companies though another, Meridian Energy, announced on October 8 that it was ditching prompt payment discounts – a "service" Meridian chief executive Neil Barclay said were actually "penalties charged for late payment of bills."
The change would cost the company $5m. Barclay denied power companies were making excessive profits but said the government review showed that it was low-income consumers who missed out more often on the discounts, often making up as much as 26 per cent of the total bill.
Poletti says Meridian's move is likely a response to the first stage of the review which showed that residential power prices have increased 79 per cent since 1990 after adjusting for inflation. Over the same time frame industrial prices have only increased by 18 per cent and commercial rates have dropped by 24 per cent.
The review found 100,000 households are experiencing "energy hardship," (spending more than 10 per cent of their income on power). It also said there was a two-tier market developing, those able to shop around and get the benefits of competition and those who can't.
"I think you could describe Meridian's move as a defensive measure ahead of any action the government might or might not take," says Poletti. "But the review's contention that excessive profits are not being made is puzzling."
Other voices have been raised which cast doubt on that assertion. Data from the Ministry of Business, Innovation and Employment (MBIE) shows, in inflation-adjusted terms, residential power bills have increased 15 per cent over the past 10 years, compared to 4 per cent for industrial customers and a drop of 4 per cent for commercial consumers.
Consumer NZ's survey research published last month shows close to one in five consumers experienced financial difficulties paying for power in the past year. It also found 14 per cent were charged overdue fees, 13 per cent borrowed from family or friends to pay their bill and eight per cent took out a loan to pay their bill.
Consumer NZ head of research Jessica Wilson said at the time the impact of rising prices could also be seen in disconnections for non-payment of bills. Last year, 25,317 people had their power disconnected because of unpaid bills, up from 19,106 in 2015.
Geoff Bertram, a senior associate at the Institute for Governance and Policy Studies at Victoria University, told Stuff in July: "Under New Zealand's Commerce Act 1986 outright profiteering by monopolists was legalised - by overriding the old English common law precedents - and this remains the case today. Blame our Parliament for that. The big electricity companies are just maximising shareholder value while the sun shines."
Poletti says Woods' contention there was no evidence of excessive profiteering seemed to be based on the review's examination of profits only between 2013 to 2017 and the fact that accounting procedures permitted by the Commerce Commission had allowed the power companies to generate enough revenue to show a commercial return on the value of their assets.
Writing up assets was an accounting measure which allowed lower profits to be displayed, he says, while the effects of rising prices had hit consumers.
Poletti says he thinks the review – the second part of which should be completed by May – could still make some adjustments in three areas, though he was not sure how much they would benefit consumers:
• The government could re-balance that difference between rising prices for residential power and stable or falling prices for industrial and commercial customers.
• They could also fix the buy-back tactic. "That's where new electricity retail companies come in and take a consumer's business by delivering cheaper power. What often happens next is that the big company who previously served that consumer does a secret, buy-back deal, for example, offering the consumer $350 and a lower rate to switch back."
• Similarly, Poletti also thought it possible the review might address "vertical separation" where the big companies had wholesale and retail arms, a combination which made it difficult for new electricity retail companies to compete and bring down prices to consumers.
"However, it's hard to see – if the review panel thinks there is no excessive profiteering, what the government will do and how much it will affect residential consumers."