Keeping the lights no has become more expensive for customers on spot price agreements. Photo/Getty Images.
Keeping the lights no has become more expensive for customers on spot price agreements. Photo/Getty Images.
The electricity market regulator, the Electricity Authority, has rejected the claim of wholesale price retailer Flick that the level of spot prices being charged by generation companies is unprecedented and unjustified.
This comes after one Flick customer, a Wellington boarding house owner on a spot price plan, was stung with a $1500 bill for one week.
Flick's chief executive Steve O'Connor has said the generator-retailer spot prices his company has had to pass on to its customers bear no resemblance to actual market conditions, the cost of delivering energy or any security supply issues.
The Electricity Authority, says it is keeping a close eye on high spot prices which are causing big spikes in power bills for the 1 per cent of Kiwi households on spot price contracts.
But the authority said the market is doing as expected, given a tight electricity supply.
"The level of pricing is not unprecedented but is unusual for this time of the year. Prices around current levels are more common during winter months in unusually dry years," said acting chief executive Rory Blundell.
The authority was continuously monitoring the market, he said.
"There is a double whammy now of lower than normal lake levels and reduced gas production. Lake levels have been below average for this time of year since late winter.
"And there have been restrictions on gas production due to equipment problems in the Pohokura gas field since late September. We understand these could persist until late November. Kupe, another gas field, is due for inspection next month and this will reduce gas output from this source."
With the resulting tighter supply, generators were having to call on more expensive forms of generation and plant that was little used most of the time, Blundell said.
"They are therefore offering electricity into the market at a higher price."
Only about 1 per cent of households were on spot price electricity contracts and directly exposed to current higher prices, he said.
"Most of the time the prices these consumers pay are well below what other consumers pay, but they take the risk that supply can be constrained and prices are high from time to time.
"Spot price retailers take steps to ensure their customers know the risks as well as the advantages of the arrangements they offer. The majority of New Zealand households and businesses are with retailers who actively manage variations in pricing for them and charge so as to recover the costs of providing this service."
Dry spring conditions have led to a surge in power pricing. Photo/File.
Consumer watchdog, Consumer New Zealand said spot priced plans were relatively new.
"It's really important that consumers are aware of the risks that come with spot tariffs before they sign-up," said Consumer head of research Jessica Wilson.
The chief executive of generator Genesis Energy, Marc England, likens signing up to spot price plans to "driving without insurance".
"Those on spot prices are led to believe they are getting a better deal but the truth is the energy sector is very volatile and the reason 99 per cent are on fixed-price contracts is that it is the best way to manage your costs and risk."
It was "very rare" to see spot price plans offered to households overseas, he said.
The New Zealand wholesale electricity market was particularly volatile because of seasonal challenges around hydro levels.
"Flick have developed this business model during a very benign period in the wholesale market where New Zealand was awash with water and wholesale prices were low.
"A lot of their customers have signed up knowing this but I worry that some have not understood that."
Genesis had yet to make a decision on whether to refuse to sign up exiting Flick customers, but there was a reason some other retailers had turned them away, England said.
"If you acquire a new customer and you're offering them your best fixed rate, as a retailer you're making a loss because you're buying on the wholesale market and selling on the retail price.
"Organisations that think Flick customers are going to come to them for a short time then go back to Flick when wholesale prices drop are very wary."
The country's largest generator Meridian, with 31 per cent of the market, said spot prices are set by the interaction of supply and demand under clear rules administered by independent entities - Transpower, the NZX and the Electricity Authority.
Fluctuations on the spot market did not affect most householders unless they had chosen to be exposed directly to them by going to a retailer like Flick, said a Meridian spokeswoman.
Flick, founded in Wellington in 2014, also offers fixed price plans and customers can switch between spot and fixed-price arrangements. The company said 90 per cent of its customers are fairly evenly spread across Wellington, Auckland and Christchurch.
A spokeswoman said the Flick brand had typically appealed to younger, tech-savvy consumers and older urban consumers with a good understanding of market dynamics or who invested in energy technologies.
