Electricity users could save $35 million

By RICHARD BRADDELL energy writer

Electricity line companies trimmed charges by 5 per cent in real terms last year, bringing a potential $35 million saving to users, analysis by consultants Cap Gemini Ernst & Young has found.

The price reduction is half the average 10 per cent - or $70 million - Ernst & Young thought possible when it released a similar review last year.

While Dr Govind Saha, the vice-president of the group's New Zealand consulting arm, said its estimate of potential gains was conservative, he noted that the industry risked direct Government regulation if those savings did not find their way through to users.

High retail electricity charges and the ability of electricity line companies to exploit their monopolies were key factors in prompting the electricity inquiry which resulted in new Government policy.

Dr Saha said the industry's success in putting together an electricity governance board to take over the functions of three existing bodies was crucial if the industry were to avoid direct regulation.

In addition to ensuring savings were passed through to consumers, the governance board also had to ensure a positive climate for investment so that supply shortages in California were not repeated here.

"It is imperative ... to ensure that it works. We would also add that the industry is aware of that obligation," Dr Saha said.

The $70 million in potential savings estimated by Ernst & Young was frequently referred to during the inquiry last year.

But Dr Saha said it was a conservative figure since it only measured the savings possible if all the line companies operated at the same efficiency as the top 25 per cent.

Even the best could find more efficiencies, and the industry would benefit from a sharp reduction in the number of companies.