KEY POINTS:
Barriers to competition in the power sector will come under greater scrutiny following the release of an Electricity Commission report into the operation of the electricity market.
Commission chairman David Caygill said because of the small size of the market and its isolation, easing entry into the market was important.
"Can we strengthen our hedge market so that companies who want to be a retailer but don't want to generate [are] able to safely in a financial sense purchase power and on-sell it?"
The more than two dozen lines companies could also be an impediment.
"If you want to be a national retailer you have to comply with 28 different sets of lines arrangements. Would it help competition if there was more uniformity of tariff structure?"
Electricity prices have risen sharply in real terms, especially for residential users, for whom real prices rose by 28 per cent between 1999.
Analysis showed that network charges have fallen in nominal terms for commercial and industrial customers, and increased by only 4 per cent for residential users between 1999 and 2006. However, there is considerable variation in the network component of bills around the country and wholesale energy charges have increased substantially over the period.
But analysis of the available data indicates that this increase has been broadly in line with the rising cost of new supply, the options paper says.
The paper, released yesterday, shows margins for common domestic tariffs range from just under 2 per cent (Meridian in Thames) to around 23 per cent (Genesis in Whangarei).
Some areas have margins comparable with or lower than levels observed in the Australian electricity market.
Margins in other areas are substantially above Australian levels.
"One of the findings of our investigations was that some consumers could save $150 a year or more by switching to the cheapest supplier in their area, yet most do not," Caygill said.
"There is also significant regional variation in retail profit margins. Some are quite high and some are low. This suggests that there may be an impediment to competition in some parts of the country."
The paper has examined in detail five key areas: pricing and competition, especially in the retail market, energy affordability, the effectiveness of the energy-only spot market design, demand-side participation and availability of market information.
The commission was also looking at alternative ways of paying electricity generators including paying generators for making capacity available.
This could provide benefits to security of supply in the longer term by providing more certainty of payment for generation that is needed infrequently or on a very uncertain basis.
